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.

All right. So good morning, everybody, and welcome to the Babcock Marine Investor Event at Rosyth Royal Dockyard near Edinburgh in Scotland. My name is Andrew Gollan, Director of Investor Relations.

Firstly, thank you to those who have made the journey here to Scotland. I know that some of you have come a long way. Also to those on the webcast, a warm welcome to those.

So just a few introductory words from me. Today's event is the next in a series of investor teach-ins around the Babcock Group, and they're designed to demonstrate our specialist capabilities, the growth drivers of our business and the strategies to create shareholder value. Earlier this year, we shed a light on the exciting growth story of our Cavendish civil nuclear business. Today, it's all about Naval Marine, specifically our naval build and support capabilities, which together currently generate just under GBP 1 billion of revenue or around 20% of the group. I know that some of you will have attended our Group Capital Markets Day in early 2024, which we hosted at our Devonport Royal Dockyard facility in the Southwest of England. There, you learned that Devonport is a national critical asset, an asset that we own and when we provide unique technical support to the entirety of the U.K.'s nuclear submarine fleet.

Not to steal anyone's thunder today, but Rosyth Royal Dockyard here in Scotland is another of the group's highly valuable and strategic assets. It's an asset that underpins our marine business, and as you will hear today, has exciting growth potential over the medium and long term. This morning, you will hear from another strong leadership team within Babcock with today's event led by CEO of our Marine sector, Sir Nick Hine.

For those in attendance, there will be a lot to see around the yard with the impressive QEC carrier, HMS Queen Elizabeth in Dock and the first Type 31 frigate HMS Venturer nearing build completion.

There's an outline agenda shown on the screen. Today, there will be two presentation sessions this morning, followed by an early lunch and a facility tour this afternoon. The first session will last around 1.5 hour and the second around 45 minutes with a 20-minute break in between. Both sessions will include plenty of time for Q&A for those in the room. So I'm sure you're keen to hear from the team.

We'll start with some opening remarks and perspectives from our Group CEO, David Lockwood. David?

So first, a health and safety announcement. If you Google Rosyth, it describes it as a town and a garden town in Fife. You're north of the river. Andrew said you're in Edinburgh. If you suggest to any of the people you meet that you are in Edinburgh, you will probably end up at the bottom of the dock. So don't say you're in Edinburgh. So over the last five years, we've transformed Babcock. We focused on our core strengths, strengthened the balance sheet and have substantially improved our risk management across the group. And as you will hear from the team, that's particularly true in Marine.

Recently, we've seen demand in defense markets increase as evidenced by the SDR and also some interesting press commentary on export opportunities in Europe over the last few days, where Ilgi will talk about how we are striving to win live active competitions. And I'm sure that if it was a slam dunk, he nailed on, he'd have told you already. All of this backdrop, the improved operational performance and the improved market backdrop have enabled us to upgrade our medium-term guidance and commence a GBP 200 million buyback.

But the subject today is marine. And when we arrived, Marine was definitely a hold your nerve business. Discussions with investors in '21 were all about what are the termination clauses of Type 31, how do you get out of it? And we said then that we were building a world-class capability and a world-class product. It was just going to cost us more than we thought because of the way we contracted, but that the endpoint was still worth striving for. And I think four years later, the new management team that we've assembled will be able to explain why that decision was correct.

It is a magnificent facility and the sun is shining. So we won't talk for too long. We'll get you out there because that's the third time this year. So I'm going to hand over to Nick Hine. Nick, as he will tell you a bit about his history, was second sealord, which is probably the best job in the Navy. First sealord is a kind of gin and tonic job, sorry, Queen. But second sealord, you actually get to run the Navy. So when you leave the Navy, you've got to find something that's even more exciting. And I think there was only one job that could be even more exciting than being second sealord, and that's being the CEO of Babcock Marine.

So Nick is probably the luckiest person in the room. So I'll hand over to him.

Hi, ladies and gentlemen, good morning, and David, thank you. You are absolutely right. This is the best job in the world. And if I fail to get that across to you in the next couple of hours, then I have personally failed.

I'd like to personally welcome you all here today to our Rosyth site. This is a fabulous opportunity for me and my team to showcase the work we do here today. What we do here in Rosyth is world-class, and we look forward to sharing that with you throughout the day.

But let me start a bit with a bit about me first. I started my career in the Royal Navy as a submariner, although I am famously known for being one of the only individuals to ever have commanded both surface and subsurface ships and submarines, both conventional and nuclear. Therefore, the marine domain is something I know profoundly well and care deeply about. Following years of operational service, I progressed into the senior ranks, which led me to work for His Majesty's Treasury, working directly to the Chancellor. That was followed by some time in policy and strategic development for the U.K. government. I then returned to the Navy to take up the very privileged position of second sealord, which again is a great title.

For those of you not in the defense sector, I was the Chief Executive of the Royal Navy, which is a global organization with about 35,000 employees, a GBP 7 billion budget and a significant stakeholder base. Therefore, a natural step when I left the service was to join one of the U.K.'s leading defense companies who specializes in the marine domain, and here I am. But I have a long history with Babcock. In fact, I recall being here in Rosyth in 1999 in HMS Splendid in a refit where we were the first submarine, U.K. submarine to get the Tomahawk missile, and then we took it to sea and test fired it in San Diego and then into operational activity in Kosovo. And for those of you who wish, I am the subject of a BBC documentary called HMS Splendid Under the Sea, which is still available on Amazon Prime for those who are interested, and I have a concession stand as you leave. And I will touch on this later. But I was also the godfather of the Type 31 program. It was my creation, and I stand by my views today that the Type 31 is the platform that navies need.

I joined Babcock initially to lead our AUKUS campaign and to focus on how we started to drive significant international growth across the group. And campaigns I started now -- started then, I am now delighted to lead across the marine sector. So I've had the privilege of leading the marine sector for the last 12 months, which is a year of change and transformation.

I refreshed my top team and now have a brilliant group of people with some of the industry's most credible leaders in their field, and they include my Chief Operating Officer, Gareth Hedicker, who joined us from Rolls-Royce, an expert in manufacturing. Our Arrowhead Managing Director, Paul Watson, an expert in the delivery of complex programs, was deployed to Devonport four years ago to lead the site and crucially deliver the -- recover the U.K. Vanguard program, which he did successfully, and he is doing spades here in Type 31 delivering for us here. Phil Craig, who runs our programs business, previously ran Dounreay nuclear site before running the Babcock U.K. Aviation business; and my Chief Commercial Officer, Ilgi Kim, headed up the big deals team in EY before joining us. So you'll see them today, and I've built the team who you will meet of leaders experienced in delivering complex programs to time and cost consistently.

This slide is one you will see and hear repeatedly throughout the day, and we'll keep returning to these five points. To put it simply, I stand here today confident that the marine sector is positioned to deliver strong, sustainable growth over the long term with significant margin improvement. This business will be a key contributor to the group's financial ambitions. Marine has a proud heritage, deeply rooted in naval capability, and you'll hear more about that during the site tour. But what I wanted to emphasize is the transformation we've been on over the last five years.

The evolution of our engineering capability, our delivery model and our customer engagement has been nothing short of remarkable. We are now exceptionally well positioned to capitalize on a dramatically improved global naval marine backdrop. Defense budgets are rising, naval fleets are being recapitalized and sovereign capability is back at the top of the agenda. The ability to deliver to time and cost is now critical, and we will continue to deliver what we say we will do.

You can see here from the first bullet on the slide, we have a strong platform for growth built on differentiated engineering capabilities and high barriers to entry. This is not a market you can simply walk into, and we are already here with proven delivery and trusted relationships.

Secondly, the structural growth we're seeing from naval fleet recapitalization is driving a significant increase in opportunity. You can see there from the third point, our pipeline now stands at GBP 22 billion and is growing. And we're investing organically to support this growth, fully aligned with our group's capital allocation priorities. And this is disciplined investment targeted at capability, capacity and innovation. In short, marine is a business with momentum, with ambition and with the capability to deliver, and I look forward to showing you more.

Let me now situate marine within the broader context of the group. You'll see here that we've split this slide into three to keep it simple, the group sector and the high-level breakdown by segment. You will note that the Mission Systems and LGE areas will be covered in a future planned IR event. But marine is not just a business unit. It's a major part of Babcock's identity and future. It's a sector with significant international exposure and strategic relevance, not just in the U.K., but I also have operational teams in our focus markets of Australia, Canada and New Zealand and in other countries such as Brazil. This all plays a central role in our group's performance and ambition. And as reported, marine accounts for roughly 1/3 of group revenue in FY '25. That's a clear indicator of its scale and its important, and it's becoming increasingly international. This is a trend we expect to accelerate, driven by growing demand for sovereign naval capability and significant export opportunities. Our footprint is growing and our relevance is expanding.

Today, we're focusing specifically on two core business streams, our design and build capabilities and our support activities. Together, these represent around GBP 0.9 billion in revenue that we have pulled out here on the slide on the left, approximately 20% of the group total. From this point forward, our conversation will center on just these two areas. Why? Because these are the engines of growth, the foundation of our differentiation and the focus of our investment and strategic delivery. Marine is a global business built on trust, capability and performance, and it's one of the clearest examples of how Babcock is delivering value today and building for tomorrow.

I'm now going to outline what makes our Marine business truly distinctive and an easy way -- an easy visual way to break it down is design, build and support. However, at its core, marine is an integrated business that delivers highly complex equipment and support across long life cycles. This isn't just about building ships. It's about an engineering capability, systems integration and lifetime support. We offer the full spectrum of naval engineering. We design, build and integrate complex naval systems and equipment, and we support them through life. From initial concept and construction through upgrades, modernization and second life programs, we are involved at every stage of the naval engineering life cycle.

But when I'm asked, Nick, what sets you apart? There are three things I want to highlight. Firstly, our technical capabilities are world-class. We operate at the cutting edge of naval engineering with deep expertise in systems integration, digital shipbuilding and complex program delivery. Secondly, our role spans the entire naval life cycle. We're not just builders, we're long-term partners supporting platforms through decades of service. And third, we have strong enduring customer relationships. These are built on trust, performance and delivery, and they give us privileged access to future opportunities. In short, Marine is a business built on capability, complexity and continuity. It's a strategic asset for our customers and a long-term value driver for our group.

This slide is a snapshot of where the Marine business stands today. We've covered the marine sector as a whole. We've spoken about how Mission Systems and LGE will be covered at the next IR event, but this is now us focusing on the design and build and support businesses for marine. This is a large and strategically important area within our group, and we expect it to grow meaningfully over the medium and long term, driven by a strong design and build pipeline.

To give you a sense of scale, marine contributes significantly to group revenues with a robust order book and a healthy pipeline of opportunities. It's a business with real weight behind it. Today, our revenue mix is approximately 25% build and 75% support, but that balance is set to shift significantly over time. Based on our current order book and pipeline, we expect to build -- we expect build to become a much larger proportion of the business in the medium and longer term.

Historically, marine has delivered steady revenues underpinned by long-term build programs like Type 31 and enduring support contracts, and this has provided a stable foundation for our growth. Operationally, we've made material improvements. We've traded through legacy issues and executed a successful turnaround. Performance is up, delivery is sharper and customer confidence is strong, and we believe there's still much further to go. It is simple, more money in, less money out, and the opportunity set ahead of us is substantial.

Our pipeline, as I said, stands at GBP 22 billion, and we expect strong growth over the medium and long term as global naval investment continues to rise. In short, Marine today is a business with scale, resilience and momentum, and it's poised for significant growth.

Moving on to marine's position on the global stage. We've built strong long-term relationships with a broad range of industrial and governmental partners across the world. And these aren't transactional engagements. They're strategic partnerships built on trust, delivery and shared ambition. And I can honestly say that we speak to these people daily. Remember, it's important to note here that these are partnerships of choice on both sides for the complementary skills we bring. These are not marriages of -- force marriages. We are deeply embedded with our customers and our partners. And in many cases, we work directly with militaries through their governments, supporting sovereign capability and national defense priorities.

One of the things that sets marine apart is the depth and breadth of our specialist capabilities. Our collective technical and operational expertise positions us exceptionally well to capture the growth opportunities ahead. And it's not just about scale, it's about the quality and the uniqueness of what we can offer. Rosyth is a standout example. It's one of the few sites in the U.K. and globally where we can deliver large-scale, modular advanced manufacturing. That gives us flexibility, speed and precision at scale. And it's the combination of our capabilities that gives us a strong competitive edge from advanced design and systems integration to complex program delivery and through life support.

But it's not just about infrastructure. It's about how we operate. We live and breathe the asset life from concept to build to decades of in-service support. And that operational asset knowledge, combined with deep technical expertise and a flexible collaborative delivery model is what makes us a trusted partner to governments and navies around the world.

Rosyth is the only site in the U.K. where our capabilities come together in one place across the group, manufacturing, support, design, build, nuclear, it's all here together as one. And that's what adds to the magic of the site, as you will see during your tour later. So in short, marine is not just capable, it's uniquely capable, and that's a powerful foundation for long-term value creation.

I'd like to now highlight what makes marine truly stand out in a competitive global market. First and foremost, there is a strong competitive barrier around this business. It's built on a combination of specialist capabilities, strategic assets and deep customer relationships, and it's not easily or quickly replicated. We are fundamentally a people business. Our technical experts, engineers, program leaders, they are our #1 asset. And as with the rest of the group, our people strategy is central to delivering on our growth ambitions. We're investing in skills, leadership and culture to ensure we stay ahead.

Rosyth is a highly valuable strategic asset. It's a nuclear license site, home to large-scale advanced manufacturing and the largest dry dock in the U.K. capable of and indeed currently accommodating HMS Queen Elizabeth. It's modern, well invested and increasingly digitized, a true digital yard with high levels of automation and integration. And we are delivering for our customer, and I can say this honestly, having been the customer and in doing what we say we will do, which is the most important thing. That's all the customer is after.

Finally, it's a real advantage being part of the larger group. We're increasingly exploiting synergies across sectors, teaming with nuclear, mission systems and exploring further opportunities in land. And this cross-sector collaboration is unlocking new value and expanding our reach. For example, we currently deliver over 200 engineers to our nuclear colleagues to support critical nuclear engineering services. So together, these differentiators give Marine a unique position in the market and a powerful platform for long-term value and growth creation.

Whilst we focus on the future of marine, and I always seek to look forward, I want to take a moment to reflect on the journey. Marine is a business with a long and rich history, one which stretches back decades well before the time line you see on the slide here. But what's most important for you today is the transformation we've driven over the last five years. We've evolved from a steady, reliable operation into a world-class naval build and support business. This transformation has been deliberate, strategic and highly effective. And the catalyst was the Type 31 program.

Following our acquisition of the Arrowhead 140 design rights, we reshaped our design and production model to deliver at scale with precision and speed. That program has become a blueprint for how we will build and how we will win. The result is a business that now competes at the highest level globally. We have the infrastructure, the talent and the delivery model to support complex naval programs, and we're doing so with increasing confidence and capability. So marine's journey here is one of transformation, resilience, ambition. And I can say, honestly, we're only just getting started.

Let me take a moment to explain how we built what is now recognized as a leading naval shipbuilding capability. The key message here is simple. Through the Type 31 contract, we've transformed our approach and capability to meet emerging global naval demand. This program has been a catalyst for innovation, investment and operational excellence. We own the design rights to the Arrowhead 140, a proven exportable platform. In simplistic terms, we have the design rights of what will become an Arrowhead wider family. The U.K. version of the Arrowhead is, of course, the Type 31 program. But as we grow internationally, this portfolio will expand. And that ownership gives us flexibility, control and strategic advantage. We've built a modular production model around it, supported by significant investment in Rosyth, turning into a modern, highly capable shipbuilding facility.

But let's be honest, that journey has not been without challenge. We've navigated the design and mobilization of a first-in-class ship, stood up a new yard during lockdown and managed through Brexit-related labor disruptions and inflationary pressures. Every lesson learned has been fed back into the system, and the result is a highly efficient, resilient production model. Today, we operate a world-class design, build and support model. And you'll see today, Rosyth features a covered build hall, automated steel cutting and welding, modular construction and automated painting systems. It's a digital yard with integrated planning, real-time production tracking and predictive maintenance tools that bring data and delivery together. So this capability is not just fit for today, it's built for the future, and it positions us to win and deliver the next generation of naval programs, both in the U.K. and internationally.

Let me now turn to the Type 31 Inspiration Class program, a cornerstone of our naval shipbuilding capability. From contract award to delivery to the customer within 10 years has never been done before anywhere in the world. The key message here is that program risk has been materially reduced. We've made consistent operational progress, and we're now well into the delivery phase with strong momentum.

We recently passed a major milestone with a successful float off of the first vessel in class, a significant achievement that demonstrates our capability and readiness. We expect the second ship to float off before the end of FY '26. Three ships are currently in build. This is a no change program, a testament to the robustness of the design and delivery model. It features a proven open architecture combat system, and we're progressing down the learning curve exactly as planned. Production units 3, 4 and 5 are tracking to target with unit cost profiles in line with our original expectations. Our relationship with the customer remains strong and collaborative. And that trust was recently reinforced when we were awarded the capability insertion program on a sole-source basis, a clear vote of confidence in our performance and in our partnership.

In future programs, we have learned from Type 31. And whilst the customer is happy, we recognize the shareholder was not. We will, of course, address the contract issues. We learned significant amounts through the mobilization period and our risk management and supply chain resilience is in a different place from two years ago. We now have real shipbuilding experience, and we will learn from our mistakes. So in short, the Type 31 program is delivering. It's stable, it's efficient, and it's an attractive platform for future growth, both in the U.K. and internationally.

Arrowhead in its simplest form is a strategic export platform. So now let me turn to the export strategy and specifically the success to date of the Arrowhead 140 frigate design. The key message here is our flexible, affordable Arrowhead 140 model is proving highly attractive in naval export markets. It's a platform that meets the needs of modern navies. It's adaptable, affordable and available. Importantly, we've not yet lost a campaign where Arrowhead 140 design was in competition with similar vessels. And that speaks volumes about the strength of the platform and the confidence our customers have already in our delivery model.

Why are we winning? Because Arrowhead 140 is a multi-roll frigate that can be tailored to meet specific national requirements. It's supported by a flexible production and sales model, including in-country build via license sales and varying levels of Babcock engineering support and program participation, and that's attractive to the customer. This flexibility is a key differentiator in today's market.

You'll hear more today about the export programs already underway. And importantly, both have follow-on potential, you can see from the slide. That includes further license sales, additional build and engineering support and over the longer term, through life support opportunities. So Arrowhead 140 is not just a ship. It's a strategic export platform, and it's helping us to open new markets, deepen international partnerships and drive long-term value for the group.

I'd now like to walk you through our growth strategy for marine, a strategy that is clear, focused and fully aligned with the group's broader ambitions. We've built our approach around a set of interrelated strategic pillars, each reinforcing the other. These pillars are designed to drive sustainable growth to expand our global footprint and deepen our capability across the naval domain. International expansion is a key pillar. We're growing our global alliances and developing strategic build and support partnerships. You'll be familiar with PGZ in Poland, Saab in Sweden and OMT in Denmark. All are strong examples of how we're leveraging local partnerships to deliver capability and unlock new markets. And we're actively exploring further opportunities to replicate this model across the globe. We see significant growth potential in shipbuilding as global navies continue to recapitalize.

So our strategy is targeted. We're pursuing opportunities where we know we can compete and win, and we're backing that up with continued investment in our build and manufacturing facility, much of which you will see later. And you'll hear more shortly about the scale of international opportunities we're engaging with from Ilgi. But ultimately, our ambition here is to become a multi-domain naval prime, designing, building, supporting and maintaining platforms across both the surface and subsea arenas. And we believe we have the expertise, the assets and the delivery model to make that ambition a reality. So marine is not just growing, it's evolving, and we're building a business that's fit for the future, globally competitive and strategically aligned with the group's long-term vision.

I'll now define the growth dynamics underpinning our marine business. The key message here is that we have significant medium-term potential in design and build, particularly across shipbuilding and advanced manufacturing. This growth has been driven by the global naval fleet recapitalization, and we are well positioned to compete for and to win these opportunities. Our modular build model, advanced manufacturing capability and proven delivery track record give us a clear edge. Beyond the medium term, we see substantial long-term growth potential in our support opportunities. You'll hear more about that as we go through today.

As new fleets enter service, the demand for through life support, maintenance and capability upgrades will grow, and we're already embedded with customers to deliver that. So in short, marine's growth is not just forecast, it's structured. We have the pipeline, we have the capability, and we have the strategy to deliver sustained value over the medium and long term.

To close, let me bring together the key messages from today. To reiterate from the first bullet on the slide, we have a strong platform for growth built on differentiated engineering capabilities and high barriers to entry. This is not a market you can simply walk into, and we are already there with proven delivery and trusted relationships. Secondly, the structural growth we're seeing from naval fleet recapitalization is driving a significant increase in opportunity. Our pipeline now stands at GBP 22 billion, and it's growing. And we're investing organically to support this growth, fully aligned with our group capital allocation priorities, disciplined investment targeted at capability, capacity and innovation. Lastly, on this slide, Marine is well positioned to pursue significant growth opportunities over both the long and medium term.

I hope you can see that we have the strategy and the capability and the momentum to deliver. We've transformed the business over the past five years into a world-class naval build and support operation. We're a major player in the global naval marine sector with strong international partnerships and a growing export footprint. Our differentiators from our people to our infrastructure create a clear competitive advantage that's hard to replicate. We've developed a leading shipbuilding capability through the Type 31 program, and Arrowhead 140 is already leading the way in global markets. So in closing, in short, marine is a business with scale, resilience and ambition, and we're building for the future with confidence.

I'm now going to hand you over to my Delivery Director, Paul Watson, who is going to deliver a storm here this morning and who leads our Arrowhead family. So, Paul, over to you.

Thank you, Nick, for that very generous introduction. It's certainly a step up from the one I received from David Lockwood some 20 years ago when I was introduced as the person who recruited to make him look slim. I'm pleased to say I've made some significant progress on that one.

So I'm Paul Watson, Managing Director of the Arrowhead business. I joined the business last August, tasked with stabilizing our Type 31 program and then driving operational efficiencies to ready the business for the growth opportunities we have ahead of us. You'll have heard David refer to this way successful programs are set up, where 50% is about the estimate and commercial conditions, 30% is about mobilization and 20% is on program delivery. I'm operating in that 20% space after we got the first 80% wrong. And I don't have an Amazon Prime documentary or a YouTube channel, but I do have a very dynamic innovative team. We're driving positive change into the program, and you'll hear and see more of that through the course of today.

Nick has kind of introduced me already, so there's not much more I would like to add to that other than I'm delighted to be leading the business for such an incredible platform for our Royal Navy and for Partner Navies and to be a head of one of the world's leading shipbuilding capabilities here at Rosyth.

A few key messages I hope to take you through this morning. First of all, as Nick highlighted, we're operating in a fundamentally changed global environment. Geopolitical tensions and rising defense budgets are not short-term trends. These are structural shifts. This creates sustained demand for sovereign capability, and we're well positioned to meet that demand through naval shipbuilding and advanced manufacturing expertise.

Secondly, our capital investment is focused on areas where we can lead, sovereign U.K. programs, export opportunities and partnerships that allow us to scale internationally. This disciplined approach ensures we deliver while building long-term capability.

Third, our digital transformation are not just buzzwords here. It's embedded in how we deliver. From digital twins to advanced simulation and AI-driven planning, we are equipping our teams with the tools to innovate faster, reduce risk and improve quality. And it's not just about tech, it's about talent. We're building a digitally fluent workforce to match that.

Next, the facilities are world-class, but it's our people who make the difference. We've relaunched our apprentice program, bringing in over 200 apprentices and committing to at least 100 new starts each year. We're also proud of our production support operative program creating real opportunities for local people, including those returning to work for the first time in a long time or those looking to change careers. This is about building a workforce that reflects the communities that we serve here.

And finally, our partnerships with international shipbuilders are more than just export opportunities. We are helping our allies develop sovereign industrial capacity, sharing knowledge and creating long-term value. And this is how we grow responsibly and strategically.

Our operations span four core areas, each of which contribute a resilient and exportable defense capability. We design complex platforms and systems built in adaptability and affordability with our Arrowhead 140 designs adopted by the U.K., Indonesia and Poland. We've digitally enabled shipbuild using cutting-edge technology to build at pace. Our team of engineering experts are drawn from across Babcock to support ongoing improvements on Type 31, and they also enable growth opportunities by transferring that knowledge and technology to our partners as we have done in Poland on the Miecznik frigate program. Digitization of manufacturing for shipbuilds has been delivered through our advanced manufacturing sales, which we've also included as part of that [indiscernible] offer. And of course, the manufacturing of high precision missile tube assemblies for the U.K. and U.S. nuclear submarines.

Our design and build offering is a core part of our business with strong momentum and significant growth potential, particularly in the near term through shipbuilding exports. We have a global workforce of around 2,000 people, primarily U.K.-based and centered here in the South. Shipbuilding generates over GBP 200 million annually, dominated by the Type 31 program, alongside international additional design and engineering support revenues. Our advanced manufacturing capability contributes a further GBP 50 million of sales from the missile tube assembly deliveries for the U.K. Dreadnought and U.S. Columbia submarine programs. And looking ahead, we see substantial opportunity through a strong pipeline over the next 10 years, which further develop longer-term opportunities in our through life support capability as we digitally enable ships to capture the data to help Arrowhead users predict maintenance requirements much more effectively, which will lead to increased platform availability and service. Phil will cover a bit more of that later.

Our differentiators, specialist engineering, we're delivering capable, scalable, adaptable warship solutions built an advanced shipbuilding capability, leading-edge digital tools and modular design. Our ability to integrate autonomous systems and secure data ensures we have a future-proof platform ready for evolving defense needs. Our asset investment in Rosyth, we're continuing to transform our site into modern digital dockyard, highly competitive and built for scalable delivery. Through our track record in the U.K. and U.S. nuclear submarine programs, we've developed an unrivaled large-scale advanced manufacturing capability, delivering precision components at volume. And we're actively expanding our global alliances and strategic partnerships to unlock international opportunities, and we have the physical capacity to scale further as demand grows.

Moving on to our advanced manufacturing facility, specifically focusing on our export business. We are uniquely positioned to support large-scale products being manufactured with high precision requirements as required across naval and nuclear domains. We're delivering tight tolerance modular assemblies through the U.K., U.S. common missile compartment program. This includes missile tube assemblies for the U.S. Columbia and U.K. Dreadnought nuclear submarine classes. Babcock is one of only two suppliers to this program with more than 80% market share, reflecting our superior performance, and we've recently won a follow-on contract, extending production into 2030s.

Looking ahead, we see strong medium- to long-term growth potential across submarine build and also for civil and defense nuclear equipment. The knowledge and expertise and investment in bespoke equipment creates a high barrier to entry for any competitor.

So pivoting to the so what and how this aligns to the market. We're operating in a highly supportive global defense environment with rising investment, particularly in naval capability. This has been driven by growing geopolitical instability, NATO rearmament and the need to reinforce sovereign defense. Customer priorities are shifting towards faster delivery, affordability and adaptability. There's increasing demand for less complex modular platforms that can be rapidly deployed and easily upgraded. And digitization and autonomy are also reshaping delivery and design and shipbuild. And we believe we are significantly ahead of most in that space, and you'll see that when you walk around the facility a little later.

We also have increased our focus towards whole life costs, and Phil again will cover some of that during his section a little later on. And we've positioned ourselves well here with an extensive through life support experience, coupled with a mindset where our designs are created with availability in mind.

So in summary, we have enduring demand. We're evidencing sustained global defense investment driven by geopolitical shifts. Secondly, we are disciplined in our capital investment to capture U.K. and international opportunities, and we are embedding digital tools and talent to transfer delivery and innovation.

So I've been a warm-up act for much of what you'll see in today's tour of our facilities and also the warm-up act for Ilgi Kim, our Chief Commercial Officer, who will take you through the growth opportunities we have ahead of us.

Thank you, Paul. So to point out, Paul, what him and his team is doing is absolutely exceptional. They're making available products and service that is truly world-class, products and services that's underpinning our undoubted growth and the growth potential, I think I'll walk you through -- which I'll walk you through now.

So good morning, everyone. My name is Ilgi Kim. I'm the Chief Commercial Officer of Babcock Marine. What does that mean? My primary accountability is to drive the sustainable, profitable growth of our Global Marine business.

For over 20 years, my focus and passion has been in big ticket contracts and portfolios, specializing in four key things: number one, business development. I'd like to identify position and shape opportunities; two, commercial structuring. I make products and services viable. I design and draft contracts are deliverable, and I ensure prices deliver profitable performance across the contract term. Three, sales execution, negotiating winning contracts; and lastly, contract delivery. That means ensuring we deliver what we say we will deliver that fuels the cycle of growth.

I'm grateful and excited by the opportunity to present to you all today. I'm particularly excited because today is exactly one year to the day I started working with Babcock. And so it is perfect timing for me to share the progress that the team and I have made in driving growth for our global marine business. We are very pleased and proud of what we've achieved thus far. So we have so much potential within our business and the market. Let's get to it.

So as mentioned, there is significant potential and activity in the global maritime design and build markets. To ensure we secure our share, we have refreshed and focused our strategic pillars from which to attack the market. Pillar 1, we focus on targeted programs. In the past, I believe our marine business was guilty of pushing a pipeline that was too large and too wide. Sometimes they overtly focus on opportunities we wanted to win rather than strategic opportunities we should win.

We now need opportunities that hit four key criteria as set out on the screen and that are robustly and continuously qualified against three key measures: wantability, winability and deliverability. The four key criteria are to: one, maximize leverage of our build capabilities in the U.K., but also our ability to transfer our know-how for in-country builds like in Poland and Indonesia. Two, we focus on products that have export potential. We do not focus on one-offs. Three, we focus on products that are adaptable, deliverable, available and affordable. And lastly, four, we focus on opportunities that can quantitatively be prioritized by strategic impact, and that allows to ensure clear focus on resource priorities across the marine business.

Moving to Pillar 2, digitization, automation and autonomy. Advanced digitization and automation is the future of design and build and our industry is sprinting into the world of autonomy. There is no debate this is the future, and we are sprinting hard to ensure we stay ahead of our competitors.

And lastly, Pillar 3, international partnerships. We know where geographically we want to play and grow. We know the strength of our global partnerships will act as force multipliers. It will force multiply our ability to make an impact in target region. It will force multiply our ability to enhance our offerings today and tomorrow. It will force multiply our ability to best understand where and how to invest and drive growth in our target region, and it will also force multiply our ability to build a high-quality pipeline.

All the above is being enabled by targeted intelligent investments in our people, capabilities and capacity. We have the best people, making the best decisions with leading industry capabilities at a scale that can satisfy the needs of our targeted strategic customers. In a nutshell, we know where we want to play, what we need to win, why we need to win and how best we can maximize our ability to win.

On our next slide, let me walk you through the scale of our design and build opportunities within our marine business. So we all love numbers in this room. So in a series of numbers, let me tell you a story of why I and the business are confident in our ability to grow our global marine business. Starting from left to right, we know there is just under GBP 500 billion of global design and build programs for naval surface ships over the next 10 years. That's over 400 programs that in total design and build circa 2,000 ships. We know that from such a large pool of opportunities factoring our capabilities today, we have just under GBP 90 billion of addressable opportunities. That's opportunities that we are capable of delivering. That equates to just under 20% of the total global programs. It's also worth noting that 70% of the GBP 90 billion is focused on frigates with other areas of growth, including corvettes, offshore patrol vessels and a small number of other ship types.

That gives us a long-term view, how about the next five years. We have a GBP 23 billion design and build pipeline that we are tracking and pursuing. That's 20 programs to build or license over 60 ships in 7 different geographies. GBP 23 billion is an important number. I said to you earlier, we now focus on what we should win. So one year ago, our pipeline was well north of GBP 30 billion. And what we have done is we have cut this by over 1/3. To me, that is absolutely a brilliant thing. We're now focusing our efforts on less to maximize our ability to win more. So that's five years. How about the next three years? A GBP 16 billion pipeline, which is a subset of the GBP 23 billion across the five years. That is five major build programs with the opportunity to build over 20 naval ships. For context and scale, our GBP 16 billion 3-year pipeline is only 3.5% of total global surface warship opportunities. What does that mean? We are being highly, highly selective. Again, I want to stress, we will pursue opportunities we need to win with a high P win and those we can constantly deliver to ensure profitable growth.

This growth story really excites me. I hope it excites you too. But I've shared a lot of information here. So let's focus specifically on the next three years.

So in the previous slide, we say that in the next three years, we have -- we are pursuing five major programs with a total award of contracts totaling GBP 16 billion. Those programs will potentially deliver revenues over a period of 7 to 10-plus years. Those five major design and build programs are focused on four geographies: Sweden, Denmark, New Zealand and the U.K. As an example, in Sweden, we are presenting our solution for a warship program. In fact, I was in Stockholm last week doing exactly that. In the U.K., we're supporting option developments of up to 11 ships across two ship types, which I'm sure you're well aware of. But those are big numbers concentrated on a small number of opportunities.

So why are we so confident? We have significant presence, strategic links and/or strategic partnerships in each of the four geographies. For instance, in Sweden, we went through a competitive process to be the build partner for Saab, the Swedish National Defense Prime, and we've been working with them and the Swedish government designing their preferred requirements for their future service investments. In Denmark, our Arrowhead ship, more commonly known as the Type 31 for the Royal Navy, is based on the Danish Iver Huitfeldt for design, and we string remain in a strategic partnership with the leading Danish naval design house.

In the U.K., we are, without question, along with BAE, the leading national naval maritime champion. If you asked me one year ago, what do naval customers want, I would have said in this order, capability, price schedule. If you ask me today, schedule is the top priority. ships are needed right away. Our experiences, learnings and enhanced capabilities derived from our Type 31 program led by Paul, makes us a Tier 1 world-leading ship design and builder who can deliver ships to schedule to require capabilities at a market competitive price point. On average, each major build program will deliver circa GBP 150 million to GBP 200 million of additional revenues per year. So if we were to secure two of the five programs I've just mentioned across the next three years, we should be delivering additional annual revenues of circa GBP 250 million to GBP 350 million.

So I've focused on five major build programs, but we have many more upside opportunities in the design build market, including licenses and engineering support opportunities in countries, including Poland and Indonesia. Both countries have huge maritime ambitions and Babcock will be a key enabling partner for both nations. This backdrop really assures me of our growth potential. We know what we want, and we know how we can win. I trust it assures you too.

So I've spoken a lot about our naval design and build opportunities, but we have more in the next slide. So advanced manufacturing. Our world-leading advanced engineering and manufacturing capabilities can do far more than just design and build ships. Over the next 10 years, we have over GBP 2 billion of opportunities to support both the civil and defense nuclear sectors as well as submarine programs, including missile tubes and submarine blocks. Over the next three years, we are tracking circa GBP 500 million of opportunities, specifically focused on the above. Today, missile tubes is a leading pillar for our advanced manufacturing pipeline. Our missile tube manufacturing capabilities are unique and world leading. As Paul mentioned earlier, we deliver over 80% of the missile tubes required for the U.K. and U.S. navies. All those opportunities sum up to how we are driving marine towards 2050, a marine 2050 road map.

So capturing everything I've said more, we've set out on this slide our high-level road map to marine 2050. Clearly, this is a dynamic road map, but it is a road map underpinned by significant data, significant engagement and significant solutioning. Beyond the five-year programs already shared with you over the next three years, we're also diligent tracking opportunities in Netherlands, Portugal, Chile, U.S., Canada and so forth. We are currently tracking 17 different countries.

To focus on other maritime opportunities, let me quickly give you an overview of Indonesia. In 2022, Indonesia procured two design licenses for the Arrowhead. And off the back of that today, we're supporting the Indonesian government and their selected national shipbuilder PT PAL by sharing our engineering expertise and our experiences. Tomorrow, I'm confident we'll be supporting Indonesia maritime-wide, both naval and civil. This is a country with a population of 300 million people with 14,000 islands. This is a substantial opportunity, a long-term opportunity, and we're working very closely with the Indonesian government to formalize our support.

In summary, we have built and we continue to build a high-quality targeted pipeline that will deliver near-term, medium-term and long-term strategic growth. These opportunities are strategically targeted. They have a high PE win, and we are confident that we can deliver.

So let's summarize everything in a small number of bullets. One, we know the global market is there. It's ready and willing to procure. Two, the Babcock Marine business is strongly positioned for growth. We have the capability, we have the capacity and we have the talent to secure and deliver opportunities. Three, we are accelerating true enablers, digital, automation and world-class talent. Four, we have a highly targeted, high-quality near, medium and long-term pipeline to allow for highly targeted investments to fuel our growth. And five, we have the footprint and three-year pipeline that gives us strong confidence in our ability to deliver our medium-term growth objectives and beyond. This is an incredibly exciting time to be in our industry in serving Babcock. We have a group executive leadership team with incredible vision and unwavering support.

We have a marine CEO with exceptional leadership, drive and unparalleled domain know-how. We have a marine senior leadership team that is extremely skilled, experienced and relentless in our drive and commitment to grow our business. And finally, we have a marine organization that has holistically has the capabilities, determination and most importantly, the belief in our growth journey. I personally am loving every moment helping Babcock Marine achieve its potential, and I have little doubt we will deliver to expectations.

So thank you for your time. I pass you back to Sir Nick.

I think we're on this microphone now, possibly. Yes. Ladies and gentlemen, good morning again, and thank you for your time. That's the first -- the end of the first content-rich download. It's a bit like being hosed down by a fire hose in terms of data. I get that. So we'll let you draw your breath for a couple of seconds.

We're on to the first session of questions opportunity. Bear in mind, there's this one and there's one following our final session this morning. So if we don't get around to you this morning, first time around, I apologize, we'll come back to you. We get a second bite of the cherry.

The way this is going to work in practice is please, if you put your hand up only so that I can see where you are. We will then rush to a microphone to you, easy, steady tiger. We'll rush the microphone to you. That will then give you an opportunity to ask a question. If I can answer the question and I like it, I will do my best. If I can't answer the question or I don't like it, I will pass it to my expert team. All right. So we'll try and answer your questions as fast as we can in activity. So please, over to the first gentleman, if we just wait two seconds for the microphone.

Sash Tusa from Agency Partners. I wonder if I could pick up on a couple of points that have been made in the three presentations and just question the basis for them. I mean, first of all, you talk about this being a business and particularly design and build with a very, very high barrier to entry. But if we go back 15 years, you were assembling carriers, but you actually hadn't produced a complex warship ever. And now you're producing complex warships. That doesn't seem to me to be a business, therefore, that has high barriers to entry. You were nowhere 15 years ago, and you've come in now and are pretty competent at it. So if you can do that, why cannot, for example, Navantia at Harland & Wolff apart from clearly all the problems of Harland & Wolff or anybody else with a very large dockyard.

So thank you. The first -- the answer to the first bit is, of course, the Type 31 wasn't the first ship we ever built. We did build OPVs for the Irish Navy. So -- not here, no doubt, but that's part of the marine sector. So we are -- the sector-wide conversation is one of -- they weren't the first ships we built.

Navantia clearly is bringing quite a lot of expertise to Harland & Wolff from its home base. So I would say they're not operating from a standing start. 15 years is quite a long time in the business. What have we done here in order to be able to achieve this? I think what we've done is we've taken an existing design. We've modified the design and then we've employed the right number of people in order to do that. We've learned a lot of lessons, which we've tried to explain.

In terms of barriers to entry, the barriers to entry are quite significant in terms of infrastructure, in terms of capacity, in terms of the capability that we've got to get in terms of people, in terms of digital backbone, for instance. The things I think that we're trying to do here that have made us successful we have invested in our infrastructure. You'll see that later today. We have invested in our people. Hopefully, you'll see that both -- you're seeing that now and you'll see that later today. And we have invested significantly in the digital and automation part of that. So the barriers are high. They're not insubstantial. They're not measurable, but you do have to spend, you have to invest, you have to be confident, you have to be able to deliver and then you have to get on and do that.

So, David, do you want the microphone?

Put bluntly, in addition to the infrastructure, if you look at the capital investment and the losses on Type 31, we've put hundreds of millions into getting to this place. There aren't that many people who've got hundreds of millions to enter the market. We didn't necessarily intend to, but we have.

Just one other question. The issue of sovereignty versus building here. If we look at Poland and from an external point of view, if you look at Poland and Indonesia, investors have seen individual slugs of income come in, in the period in which you've got a license. But it hasn't -- we haven't got the impression that it's generated sustainable revenues here. And if you became a business where the sovereignty was dominating your business, i.e., you were selling licenses, you'd be a rather different shape of business, whereas it seems you've got a lot of hungry mouths to feed here.

So how do you actually wean some of your potential customers off the idea that they can just build in country and that you'll supply them with everything they need?

So of course, the answer is I'd like to do both, and we are aiming to do both. There are customers who can build in country and there are customers who can't build in country. There are customers who want to build in country and customers who don't want to build in country. I wouldn't want to lose any of the opportunity by saying we will not help you build in country and therefore, go to somebody else. That doesn't seem to me to make business sense. But equally, we would want to work for customers who want to build here.

So there are customers in our pipeline who will want to -- who have no desire to build in their own country, want to build here or indeed want to build here to start with and then transfer the knowledge over time to be able to build in country at a later date. There are also countries who wish to build in country from a start go from Poland being a perfect example, because they have what they consider to be a baseline capability that just needs the addition of expertise.

So there is enough in both of those activities to go around. I don't think that changes the shape of the business. I think what does change the shape of the business if you don't go for both opportunities simultaneously.

Next question. Gentleman at the back.

Chris Bamberry, Peel Hunt. A couple of questions, if I may. Clearly, you've got a lot of opportunities in front of you. What do you see as the greatest potential constraints to delivering that? And how are you addressing them?

And secondly, you've talked about digitally enabled manufacturing. I mean, are there -- I know nothing about this. Are there off-the-shelf products you can use and then develop your own needs? Or are you having to develop a lot of that yourselves?

So in answer to the first question, capacity conversations, if you like, in terms of our ability to deliver, what are our constraints. You'll have heard already how much we've invested currently in Rosyth infrastructure. And you'll see as you go around, we are investing further in Rosyth infrastructure, and we have a planned infrastructure investment set of activities here dependent on success in the market in order to generate additional capacity in the infrastructure space.

So you clearly need buildings and stuff in order to be able to do this. You also need people. And people is a finite resource. There is competition across the other side of the country in order to deliver this. So people is a finite resource. We are working very hard on delivering a long-term sustainable growth pipeline for our people. You heard about the number of apprentices that we take on 100 apprentices per year, and we take on -- we have a production support activity, which is a sort of a pre-apprenticeship conversation for want of a better term. We take 50 a year. We reduced significantly the amount of contingent labor that we had on the Type 31 program, which is therefore available to us going forward as we want to make that forward.

But I want to establish a long-term sustainable bespoke Rosyth workforce here that wants to work for Babcock that wants to deliver for the long term. And therefore, we'll need to grow that people capacity alongside our infrastructure capacity, recognizing that there is a lag in both of those, and therefore, we'll need to be smart about how we do that. So the constraints are fundamentally in those two spheres. One is infrastructure and one is the people space, and we're addressing both as we go forward.

In terms of advanced manufacturing, you'll see when you go around, two things I really love and people will laugh about this, but the team will understand what I'm saying. So the first thing is when you see the advanced manufacturing of the missile tubes, we are effectively buying off-the-shelf equipment in order to be able to do these things. And they are big multimillion pound machines that take enormous pieces of metal and turn them through three dimensions and cut them into great shapes, all of which is just really cool. So we're able to buy that and then use that without having to develop it ourselves.

The second thing that's really, really cool is in order to paint a ship, this might sound a bit weird, but the current method of painting is manual. So a person with a paint roller on a stick literally paints the outside of a ship. And it takes forever for all the reasons you understand. We've got these really cool things called robot painting spider monkeys. You'll see them. They're just things that crawl up and down the side of the ship and paint the ship. They're just really cool. But they reduce the amount of time it takes to paint a ship by a factor of 10. Right? Okay. Well, but I don't have to invent those. They exist. So we'll buy those in.

There are some things though that we need to do independently or organically. we need the ability to manipulate data because in order to be able to do this, in order to be able to get to a fully digitized product and support solution, we need to understand better the data that we create. We need to be able to understand that better. We need to manipulate it better and then we're able to do things with that data. That data is worth money. And we need to be able to monetize that, and we need to do that organically. And we have a plan, we have a partnership with a big American data company that we can do that with over time, and we need to be able to do more in that space.

Does that answer your question?

Yes. Thank you.

Gentleman in the front.

When you think about the growth in the business, how much can you do that by increasing the throughput through the existing infrastructure and frigate haul compared to perhaps needing to build another one or really increase the capital investment?

So I'll hand over to Paul in a second because we're now in a level of detail that he will better explain. But fundamentally, you'll see today, we currently have the capacity to build two ships side by side and the third one in dock. So we're effectively producing three ships simultaneously. But it's only big enough to do one in, one out.

If we want to do two programs in parallel, which is the aim, i.e., run the Type 31 program, but start another program while we're still doing Type 31, then we'll need a bigger haul. We'll need to extend the haul so that we can actually have more facility at the front end in order to do some more manufacturing and assembly under cover. Building ships in the open in Scotland is not a great idea for all the reasons you'd understand. So we will need to do that as we move from Type 31 through to two more programs. So the additional infrastructure is required effectively for the second of the two programs because we can manage through the first, if you like, as a transition.

That infrastructure is important. You'll see it today. We'll do some already. Some is already planned for the Type 31 -- existing Type 31 program. Then the second phase is to get us to the second of the two programs that we just talked about winning here. And then there's an additional plan, should we be more successful beyond that in order to deliver more activity. And it's then effectively more build capacity, more advanced panel lines. You'll see those today. So we put another panel line in and then we do more undercover work. But we also have the ability to outsource some production activity if we don't think it's either within our gift to do or it's more cost effective. do that.

Paul, do you want to just answer?

It's a very good question, Tom. And I think Nick probably covered the majority, but we have a number of levers that we can pull. We are working with others in the supply chain where we know there's capacity that can help us in the short term. We understand very well what it needs to take on additional programs. We have a CapEx plan that will be triggered at the right point when we know the business is coming in, and that's aligned to the demand that's coming in through the customer base. So we're very clear in what we need.

Next question. Gentleman here.

David Farrell from Jefferies. A couple of questions for me, please. Firstly, can you talk about the capacity availability at your competitors when you're going up for these projects? How much capacity have they got actually to take on this? And therefore, how does that help your success rate?

So the first question is in terms of U.K. competition, the capacity in BAE following their successful bid for Type 26 into Norway is now -- I think it's been reported as consumed into the mid-2040s. So effectively, government got to now full. And therefore, that is clearly of benefits to us in the U.K. Navantia is struggling to get to what it needs to do in order to deliver FSS under the current contract. So Navantia is -- so in terms of U.K.-based activity, I'd say we were now well placed in terms of capacity, and we just talked about how we might deliver increased capacity should that be necessary.

Internationally, very difficult to say because, of course, lots of international people will promise the world and then give you 1,000 reasons why on delivery, it can't be done. But there will always be competition from other industrial yards in foreign countries, particularly if there is an incumbent in country. So we are always in competition with those.

One of the reasons why international partnerships is so important is because actually being in a partnership with a country -- a company that's in country, has an in-country presence gives us a significant advantage.

When we talk about Saab, for instance, that's a partnership of build, design, build and support that will be done across two nations because the capacity is better spread across countries. That makes sense.

And then second question comes back to kind of automation. You obviously alluded to some of the investments you've made. But are there further investments you could do if you got a longer pipeline, i.e., you would get the return on that automation and that might help address some of the capacity issues you got from a people perspective?

Yes. And I'll hand over to Paul again because Paul and I talk about this pretty often in terms of why can't we do more to go faster and reduce the number of people demand that you've got in my signal.

So the answer is we can do more of what we're currently doing to generate more capacity. Panel lines is a perfect example. And we can do other things that are innovative. We have a partnership with Strathclyde University to look at more innovative robotic techniques. So we need to do -- we currently do painting on the outside of the ship with my special robot painting spider monkeys. They currently don't do things inside the ship. So there are things that we should be able to do painting inside a ship is just -- as you can imagine, you'll see later on, it's just hard because it's like painting the inside of your bathroom upside down in the dark with one hand type behind your back. There should be -- we should be able to do that more efficiently. Therefore, there are lots of opportunities that I think we can do.

But to be fair, and Paul will, I think, ask more of this when he talks, it's -- we need longer-term programs, more certainty and outcome in order to generate the return on investment.

So if we look at three areas, the advanced manufacturing for the missile tube assembly, we've already increased capacity through some investment we've made over the past 12 months. There's further demand from the customer to deliver more in year. The customer is backing us there, and they're going to make the investment to support that.

If we go to the shipbuild side on the panel line, we've already identified opportunities to increase capacity, increase throughput, which helps us in Type 31 program, but also create some capacity at the tail end of the program for some of the opportunities that we'll be speaking about this morning. And the final one is on the build side, where we have a fairly innovative approach being proposed now agreed backed by the Board, where as soon as we have the additional orders coming in, we have a further build capability that's going to be undertaken to support that.

And just -- sorry, just final -- it's not just about -- if I come back to my time with the customer, I always wanted to ship yesterday and why was that so difficult. So I mean, given what Ilgi was talking about schedule but now being paramount, the customer is going to put more and more demand on having a schedule that is held and then look to us to propose innovative ways of improving that schedule. And that should be a reward, reward conversation, but we will have that conversation, particularly with our U.K. customer.

Gentleman.

It's David Perry at JPMorgan. There are just two small questions, clarifications. One, in your slide where you said GBP 500 million to GBP 600 million of revenue design and build in FY '30. I'm just curious, is there any U.K. Type 31 left in that? Or is that completely gone?

So, David, that runs out -- the U.K. revenue program runs out 29/30/31 effectively. So that's no longer U.K. revenue.

So it's all new programs basically.

There's a bit of legacy, but it's very small.

Yes. And the second clarification on the Ilgi slide where you talked about five potential programs of about 20-plus ships. Of the two that you're assuming you win, should we just assume they're roughly equal in size? Or is there like one very big one, one very small one or?

In my very simplistic head, we're now way beyond my level of experience. But if we just go for -- of the five programs, it's worth thinking about there are two that are bigger and three that are smaller, two that are about five each and three that are about two each. And therefore, if you work on the principle, the two smaller ones are the first two that we get the two at two, that gives you roughly over a 7- to 10-year period, 2x GBP 200 million a year, which is the number that we're going to be focusing on.

If you then -- if you were to substitute either the two for one of the bigger programs, then clearly the math is pretty similar. But then if there is anything upside on that, then it becomes additional conversation. But it's worth thinking about -- most of the programs for a four or five-ship or program, it's about GBP 2 billion. It's about 7 to 10 years in terms of revenue. And anything else is then just a variation on that activity.

So that's where our math comes from, David. Does that make sense?

Yes.

Gentleman in the middle.

George Mcwhirter from Berenberg. I think on the opportunities chart, you talked about the four main countries for Sweden, Denmark, New Zealand and the U.K. Can you just talk a little bit about why the existing export customers aren't included in the top four priority customers, please?

Sorry, by which you mean Poland? So there -- so firstly, they're existing customers, and therefore, we're trying to win additional work. The money there has already been realized and accounted for.

In Poland and Indonesia, particularly, they were largely license sales, so they were one-off payments. What we're trying to do in Poland and Indonesia is then expand our footprint in order to provide longer-term engineering support and through life product support as we move forward. So those are upsides because they're not yet programs in their own right. They're not programs that have been identified by the customer in terms of activity.

As we go forward, those new programs in the design and build space are effectively that. They're new programs that would start and stop either here in Rosyth or indeed abroad. So existing customers slightly separate from activity because they don't actually have programs that are identifiable and winnable in that period. Not say the programs won't exist. It's just they're not yet been identified by the customer.

Okay. Sorry, just a follow-on. The U.K. opportunity, can you just talk a little bit about that opportunity? I think there are two, the Type 83 and another one.

So there are two U.K. programs of record currently in play. One is MRSS, the Multi-Role Strike Ship the other is Type 83, which is a replacement for the Type 45 air warfare destroyer. Think of Multi-Role Strike Ship as Royal Marine delivery vessels. Think of Type 83, as I say, Type 45 replacement.

In my mind, as the previous customer, and I can't talk for the Royal Navy, I can talk for my previous experience. The beauty about the Type 31 program is the Type 31's modular ability to flex and morph into different things ideally positions it to be able to compete in both of those spaces depending on the customer requirement set. So the customer requirement set has not yet been set for either of those platforms, but we will push hard and we will work with the customer to define the requirement set to the Type 31. It's a competitor, strong competitor in both of those activities.

There will be some derivation from the Type 31 that's currently being built. But the beauty about the Arrowhead design rights, if you like, the modular capability is that we can adapt the current platform into producing a different set of capabilities using the same whole form, the same propulsion train, lots of, therefore, the design work, the nonrecurring engineering and the time to -- crucially the time to deliver is reduced.

So if the customer wants -- if you want ships more quickly, then you take an existing design and you modify it, you don't start again. That's what I think uniquely places us in this new world of the customer wants his ships and he wants them yesterday.

Last question, sorry, so last question for the -- before we do the break.

Ben Varrow from RBC. Just one clarification on the numbers, just on the GBP 500 million to GBP 600 million. So we've spoken about capacity, but does that -- to hit that, would you require -- or can you give us an idea of the CapEx needed to hit that level?

Do you want to -- David now into numbers, but I would -- I mean, I can have a go, but I probably get in some trouble.

Yes. So there will be -- they'll probably -- as Nick said earlier, by the time you're looking at the second program, we'll probably need extra build capability here, and we're talking a few tens of millions.

So ladies and gentlemen, that's the first hose down finished. Thank you for your attendance. We're now going to go back for coffee, 20-minute break. We'll round you up again and come back in for a second session where there'll be a couple of more presentations, and then we'll give you the brief Q&A session, brief for the Rosyth tour, and then we'll break for lunch before we get you all suitably dressed and retired and ready to go for the walk around, which is the most exciting part of the day.

Trust me, it really is. Then we'll bring you back. And if I get to you -- we get back at the end of the day, and I will ask you, so do think about this on the way around. If I ask -- when I get to the end of the day, and I ask you, if you don't think this is as cool as I do, at the end of the day, I have fundamentally failed, all right. So please come back and tell me why -- how I can make it cooler or why it wasn't cool. But please -- 20-minute break, have a cup of coffee and we'll see you back in 20 minutes.

Welcome to our second session today. And I'll start with the thanks. Thanks for coming back. I was a little worried in the scramble to get a copy of Nick's DVD from Amazon Prime and some of you might not make it back. But I've done some research for you, so you don't have to. There's good and bad news. So the good news is there's plenty of copies. The bad news is they're VHS format.

Welcome to the second session today. This one is all about through life support for the assets and the products that you heard about earlier. As Managing Director of Marine Programs, I lead a business at the heart of the Babcock Marine sector, a business that provides the stable platform underpinning growth and our export ambitions that Ilgi Kim and Paul talked about earlier.

Our marine sector is defined by its breadth of capability. I've spent 15 years at Babcock across the nuclear, aviation and now the marine sectors. And that experience gives me a unique perspective on how our integrated capabilities deliver real value for our customers. Support is our foundation. We may not make the headlines, but assets that are not deployed, available or affordable are just assets. Buying an asset doesn't buy a capability. Ensuring those assets can deliver the outcomes they were intended for is the basis of support, and that's exactly what we deliver. Support delivers reliability and underpins both stability and growth for the sector. For decades, we've been a trusted partner to leading navies worldwide.

Today, I'll show you how our expertise and our reach complement the products and export campaigns. And we'll start with a short video.

[Presentation]

Support is the backbone of our marine business. It's strong, it's resilient. Recurring revenues anchored in long-cycle contracts and deep customer relationships. There are the powerful forces driving this market. Global shipbuilding programs and Navy recapitalization programs are accelerating, as Ilgi touched on earlier. These aren't short-term cycles. They're multi-decade commitments. That means sustained demand for high-quality support services, and Babcock is well positioned to capture that growth.

Support requires expertise and trust, and this is where Babcock excels. Our teams are embedded in customer operations with decades of asset knowledge across platforms and classes alike. Customer priorities are clear: more days at sea, faster turnaround and lower total cost of ownership.

Our model is built for that. We combine digital innovation, digital twins, predictive analytics with engineering expertise and operational insight of over three decades. That shifts us from break fix to outcome-based delivery, higher uptime, lower life cycle cost, better planning, strong and stable margins. Every new platform, whether a new build or a major refit creates decades of downstream opportunity. maintenance, upgrades, obsolescence management, training, mission system refresh. The result, a stable medium-term outlook with strong long-term potential across both the U.K. and our international markets.

So let me ground this in what we actually do and why that matters. At its core, we are a long-term support partner to global navies, delivering through life support for some of the most complex naval assets in service today. Our role spans the entire life cycle from in-service support and operational maintenance through deep maintenance, life extension and even second life support for platforms transitioning to new owners. This is not a short-term activity. It's decades-long commitment that underpins fleet readiness and national security. This is a complex business.

Support is not just about turning banners, it's about class output management and technical engineering that keeps warships and submarines safe, capable and effective, often well beyond their original design lives. That requires specialist skills, digital solutions and deep platform knowledge that few can match. We've been doing this for generations across multiple navies in the U.K., Canada, Australia and New Zealand. We are following fleet recapitalization programs internationally, supporting second owner markets like Brazil, Ukraine and Romania and targeting new build export programs in Poland, Indonesia and beyond.

Ensuring every new platform that we design and build becomes a long-term support opportunity. This global reach gives us resilience and growth optionality. Our capabilities include through-life support for warships and conventional submarines, deep maintenance, life extension and capability upgrades. integrations of platforms, systems and equipment, digital defense solutions that improve availability and reduce cost, delivered from owned and managed dockyards giving us control over schedule, quality and cost.

So where are we today? We have a team of over 3,000 professional people worldwide. The U.K. remains our single largest market. But our international footprint is strong and is growing. Today, just over 50% of our revenue is international, and that share will increase as the U.K. manages class transitions and international opportunities accelerate.

Our contracts are long term, typically 7 to 10 years or more, often structured as cost plus or cost plus with incentives. That gives us predictable, stable revenues and strong visibility, which is critical in this sector. This is a business built on recurring partnerships, partnerships that give us confidence and give our customers confidence too.

Today, we have an order book of GBP 500 million and a 3-year pipeline exceeding GBP 5 billion with a significant share internationally. That pipeline reflects fleet recapitalization programs, second life opportunities in markets like Brazil and Chile and new build exports where we embed through life support from day one. Support today is stable and resilient with strong visibility and a clear runway for international growth. It's a core part of our strategy and a key driver of long-term value creation.

Let's look at the key contracts and programs that underpin our business today and drive growth for the future. These are long-term strategic positions in our core markets and beyond. First, in the U.K., we deliver the Future Maritime Support program, FMSP, a multibillion, multiyear contract providing technical through-life support for the Royal Navy's Type 23 frigates, amphibious fleet and small boats. We operate this in a noncompetitive renewal environment, and we are preparing for the transition to NSIGN, the naval support integrated global network. In the coming years, bringing the Type 26 frigates into our support portfolio and extending our role well into the next decade.

Internationally, we hold anchor positions in key markets. In Canada, we deliver through life engineering support, deep maintenance and fleet support for the Victoria-class submarines with potential to expand into surface ship as recapitalization progresses. In Australasia, we provide fleet support for both the New Zealand and Australian Navies and asset management for the Australian Navy landing helicopter docks. Plus, we support the Collins class submarines. With AUKUS on the horizon, there's significant opportunity to grow our role in submarine sustainment capability upgrades.

We're also building a growing revenue stream from second owner markets, life extending and converting Royal Navy ships for new operators in countries like Brazil. This not only generates revenue, it deepens relationships with global navies and creates future build opportunities that Ilgi and Paul were speaking. And for Ukraine, we're supporting mine countermeasure vessels that will support the country post conflict, showing our ability to respond quickly and deliver in challenging environments. These programs give us scale, stability and strategic positioning in markets that matter.

So let's zoom out and take a look at the market dynamics that are shaping our business. The headline is clear. We're operating in a supportive market environment, and we're well positioned to capture the opportunities that, that creates. Geopolitical instability is driving significant increases in defense spending globally. We see this across NATO nations and in regions like Asia Pacific and Latin America, where navies are recapitalizing fleets and investing in maritime security. For our customers, the priorities are clear: more ships, more available, more of the time. but budgets remain under pressure. So the challenge is delivering capability and readiness at lower through life cost. That's where smarter support solutions, digital tools and life extension programs come in.

The key drivers are fleet recapitalization, rising operational intensity and demand for in-country capability. This guarantees long-term support demand tomorrow. Every new platform creates a downstream opportunity that lasts for decades. The combination of these drivers creates a market that's not only growing, but also aligned to our strengths, deep engineering expertise, innovative digital solutions and global reach.

Our differentiators are designed for this market. We bring decades of deep engineering knowledge and asset expertise. And to Sash's question earlier, this isn't something that you can replicate quickly. Our teams have been embedded in naval operations for generations, building an understanding of platforms and systems that are second to none. Our heritage is rooted in through life support. We started as a support partner and evolved into delivering products and services worldwide. That experience is built into our designs, something that our competitors simply can't match. They're product providers trying to move into support without the history and the longevity that we offer.

We own and operate some of the most strategic valuable dockyard assets in the U.K. Rosyth is the only yard capable of major work with the capacity and capability to deliver for the Queen Elizabeth Class carrier, and you'll see it when you walk on the site today. Devonport provides covered dry docks and extensive shoreside capacity for complex warship and submarine maintenance. These facilities are strategic national assets, and they create barriers to entry that competitors can't match.

Supporting one of the world's most capable navies sets the gold standard internationally, making our Royal Navy calling card an extremely powerful asset. When we walk into Canada, Australia or Brazil, that reputation opens doors and builds trust. We're also deepening relationships with our global partners from New Zealand to Oman, creating a network that allows us to deliver in-country capability where customers need it most. This combination of heritage, owned infrastructure and global alliances is hard to replicate and positions us as a partner of choice. We are partnering organization at our heart with collaboration at the heart of everything that we do. Our heritage and experience mean that global product partners want to talk to us about through life support. Together, these differentiators create a competitive advantage that underpins our resilience today and our growth tomorrow.

Our strategy is clear. It's built on three pillars: secure the base, grow internationally and lead the shift to digital. First, secure our U.K. foundation. That means delivering on the FMSP contract and preparing for its renewal under NSIGN, which will provide stability well into the next decade. We're also targeting future opportunities like Type 31 through life support, where we have the distinct advantage of being the OEM. And the follow-on contracts with the Queen Elizabeth Class carriers where we already play a crucial role in their sustainment today.

Second, grow internationally. By following our products and leveraging our reputation, we'll accelerate growth in export markets over the long term. That includes supporting our Arrowhead 140 ships as they enter service and expanding in second owner markets.

Third, lead the shift to digital. We're working with companies like Palantir investing in technology to differentiate our support offering. This is where we see real potential to improve outcomes and margins. These three pillars give us stability today and a platform for sustainable growth tomorrow.

Let's take a moment to dive into our digital support because this is a critical enabler of our strategy and a real differentiator for us. Why does it matter? Navies today face higher operational tempo, smaller fleet and rapid technology change. That means existing and often aging fleets are being pushed harder than ever. Customers need more availability at lower cost, and they need it now. Traditionally, support has been reactive with fragmented data, maintenance driven by fixed schedules or failures. We're transforming that model, investing in digital solutions, predictive maintenance, digital twins and AI-enabled fleet management, moving from reactive to proactive and ultimately, predictive support.

This isn't technology for its own sake. It's about delivering what matters to our customers. We proved this through the Type 23 digitally enabled asset management trial using new diesel generators and a machinery control and automation system, we enabled real-time condition-based monitoring of the key systems. The results, optimized generator loading to extend asset life, timely maintenance interventions, improved spares planning. The outcomes were clear. Significant reduction in spares holding on board worth double-digit millions to our customer higher demand satisfaction and validated maintenance philosophies and an average of 10% increase in the consumed life of components compared to the baseline.

Now we're scaling this, integrating sensor-driven predictive maintenance and digital twins to monitor and manage asset performance in real time, building a unified digital backbone, consolidating global data, linking it to supply chain readiness and parts and resources to ensure they're in place before a failure occurs.

And why does that matter? More days at sea, fewer unplanned outages and lower life cycle costs. And because we already hold decades of operational data and platform knowledge, we're uniquely positioned to lead this shift and embed digital as a core differentiator in our support offering. That sets up the long-term visibility.

We have stability in the near term, underpinned by long-term contracts and strong visibility of growth as new platforms enter service globally. As I mentioned today, our revenues are anchored by a broad range of long-term contracts, both in the U.K. and internationally. These include the FMSP program, submarine sustainment in Canada and Australia and second owner support markets like Brazil and Chile. These contracts give us predictability and resilience in the near term.

Looking ahead, the opportunity set is significant. Within our pipeline, we expect to follow multiple new platforms into service over the coming decades. In the U.K., that includes the Type 31 frigates, multi-roll strike ships and the Type 83 anti-air warfare frigates. Internationally, we see opportunities linked to our Arrowhead 140 exports, Canadian submarine recapitalization programs, Collins Class life extension in Australia and second life programs in emerging markets. Yes, some older assets will leave service over time, but they're being replaced by new platforms at a pace we've not seen before. That will require decades of support through life. That creates a rolling wave of opportunity that underpins our long-term growth story.

So to recap, today, we have a stable U.K. base, anchored by long-term contracts and an international growth engine that is expanding rapidly. Our pipeline is broadly stable, although we expect more international growth in the long term. That's important because while the U.K. remains crucial, the growth story in support is international. Our long-term visibility is underpinned by fleet recapitalization programs, second owner markets and digital transformation, all positioning us to deliver more availability at lower cost for our customers. And as new platforms enter service, we will follow them for decades. This is a business built on trusted partnerships, growing international pipeline and a clear strategy to lead in digital innovation. Behind that is a strong leadership team and a deep talent pipeline, giving us the capability to deliver. So to close, support is about resilience, availability and confidence, stable today and growing tomorrow.

With that, I'll hand you back to Nick. Thank you.

Thank you, Phil. Let me try and draw this together. By now, you'll have seen the scale of ambition we've laid out for the future of the marine sector and the strength of the platform, we believe we've built to deliver it. To put it simply, I need to land just two build opportunities to achieve mid-single-digit growth. That's the baseline, and it excludes the potential upside from areas like advanced manufacturing, which we believe could be significant.

And as I said at the start of today's session, I am confident we will win those two opportunities within the next 12 to 18 months. The pipeline is strong. Our positioning is clear, and our delivery track record is building trust with customers around the world. We are preparing ourselves through investment in capability and capacity in readiness for the future. Marine is a business with momentum, with capability and with confidence. We are ready to grow, and we are ready to win.

And when you break it down, it comes down to these three fundamentals. The right people in the right place at the right time with the right capability in which I include automation, digitization and advanced manufacturing, all brought together in the rightsized capacity. And we have plans in place to deliver the right number of people as we scale up with investment. We plan to invest in advanced manufacturing and infrastructure, but of course, we will do none of this without the contractual cover. We have learned from the Type 31 experience.

While our growth team is out in the market securing the next wave of opportunities, our operational team is preparing us for the future, ensuring we're ready to deliver at pace when those opportunities are realized. I'm looking forward to showing you all of this in person today as we walk the site together. And you'll see -- I hope you really do see and you feel this, you'll see the firsthand the capability, the energy and the ambition that defines marine today.

At the Marine sector level then, as per our guidance, we will reach a 9% plus margin in the medium term. And the levers you can see on the left of the screen lay out exactly how we'll get there. We're applying discipline across the board. We have learned from past mistakes, and we will not be accepting the kinds of commercial terms we've taken on previously. That's a fundamental shift in how we approach risk and value creation. We're continuing to improve our delivery, not just in terms of what we build, but how we build it.

Our efficiency is increasing across the program, and you'll see that firsthand today when we walk the yard. The difference in build rate between ship one and ship two is a clear demonstration of the learning curve in action. This is all underpinned by a robust digital infrastructure from planning and scheduling to automation and real-time performance tracking. It's helping us drive consistency, predictability and margin improvement. So we're not just talking about margin, we're showing it. And again, I look forward to demonstrating that progress with you in-person today.

So before we finish up, let me once again bring you back to these key messages. Firstly, we have a strong platform for growth built on differentiated engineering capabilities and high barriers to entry. This is not a market you can simply walk into, and you'll see that today. We are already there with proven delivery and trusted relationships. Secondly, the structural growth we're seeing from naval fleet recapitalization is driving a significant increase in opportunity. And that opportunity looks like a GBP 22 billion pipeline, and it's growing. And as a result, we're investing organically to support this growth, fully aligned with our group capital allocation priorities. This is disciplined, targeted at capability, capacity and innovation. And lastly, on this slide, marine is well positioned to pursue that significant growth opportunities over both the medium and long term.

In sum, marine is a business with scale, resilience and ambition, and we're building for the future with confidence. And as it says on the slide, we're only just getting started.

I look forward now to take any further questions. Again, back to the same position as before, please. I know Sash has got his hand up, so we'll come to him first, but I'll just grab the microphone and then we'll do that. Thank you to those that joined us online. We'll now be drawing the webcast to a close. Sorry, you can't join us on the tour, but you are more than welcome to come and visit us in the future.

So thank you to those online and then into the room, please, for Q&A.

Sash Tusa from Agency Partners again. A couple of questions. First of all, on the -- what the pre-loved ships support market. If you look at the work that you did, let's just take the amphibious ships, take a 10-year rolling average of the work that you did on supporting the amphibious in the U.K. and then the profile of the sort of work that you might get supporting them in Brazil. Is that work the same in monetary value, half a quarter, double? And are the margins similar? It's trying to work out whether this is just a continuation of the existing revenues or whether actually there's a -- and profitability or whether there's a change in the nature of that work?

So I'd love to answer that question, but we are in the difficult and I don't like it. So I'm going to hand that to Phil.

David probably wants me to give it to him, to be honest. It's not the same. So that's for sure. The Royal Navy standard of support and what they consider they want to deliver is very, very different depending on where you are in the world. So there is a change. The quality of earnings and the margins are better, I would say, but the revenues might be different. So...

And then the other transition is clearly the transition between Type 23 support, which has been the dominant support program for as long as I've covered Babcock to Type 31. And I'm interested that you don't have a contract yet for Type 31 support. But if we -- I mean, if we look at that, is Type 23 on a per ship basis incredibly high because it's a very, very old class and you've just got to keep on patching them together. And so should we expect on a per ship basis to see that, again, the same up, down?

So I think there's a whole bunch of stuff in there, Sash, if I might. So firstly, clearly, the Type 23s is there -- I mean, they were designed for 18 years of life in the North Atlantic at 180 days operation a year and the Royal Navy, let's say, far exceeded its activity. Therefore, the amount of maintenance they required and the length of time they've been running on has clearly far exceeded that, which would be the norm. So the first part to say is that Type 23 norms are clearly high.

The second thing to say is, whilst we don't yet have a Type 31 contract because that hasn't been yet completed, we do have the Type 26 support contract. So there will be an inevitable transition between time in service, Type 23s as they exit Type 26s as they enter and there's a Type 31 thing to have in the middle of all that at some point.

In terms of the volume, Type 20 -- I have to be careful what I say, but let's assume that Type 26 in a level of complexity that assumes similar to that of a Type 45, then the amount of work and the complexity and therefore, the revenue will be high.

That's on a per hole basis.

On a per hole basis because a like-for-like comparison with the Type 45 demonstrates a high level of requirement and revenue for a Type 45 support than it does for a Type 23 at a similar point in its life cycle. So the volume will go up. The timing is different. And clearly, we're not quite sure what that looks like depending on the delivery and the Norway contract will change some of that depending on whether there's a shift in the delivery schedules for U.K. platforms. So that's going to be. The Type 31 contract is yet to be completed.

Now as Phil said, we must be -- I find that very difficult, and I will find it very hard not to be in prime position to get that, particularly when we start to talk about our advanced digital support conversations that we did in the past.

So I can hand to David if he wants to talk about the numbers particularly, but he may not. The short -- the long answer to your short question was, yes, it's going to change. Can I give you a number? No, I can't. But am I confident that we will get out of this? If you think about Type 2 -- if we have -- it's an interesting conversation I have with Phil this morning. If we have the Type 26 support solution for the U.K., then I'm going to go really hard after the Type 26 support solution in Norway. That's -- I'm going to go after that. Now not yet a competition and, but -- so there are opportunities that are coming that we are going to try and exploit.

Phil, do you want to add anything else?

The only thing I would add was that there's the fleet recapitalization programs around the world means there's going to be more hauls in service. So even if there's a change, there's more per hole basis on which to base that change on, if that makes sense.

And sorry, one tiny follow-up question. Do you need a new frigate haul given that Devonport won't fit anything the Royal Navy is bringing in service now?

So it sort of depends what you want to do. And I don't think the Navy quite knows what it wants to do yet in terms of how it wants the maintenance conducted. So would I like the Royal Navy to pay for a new figure haul in Devonport? The answer is absolutely. Do I think that the way that Type 26 is going to be maintained will necessarily require a new frig at all? I'm not sure. If you look particularly at the way its docking life cycle is completely different to anything we've seen previously. Therefore, I don't think we quite know. Clearly, we can bring Type 31s here. And therefore, you would need to do that. So I think again, the answer is I'm not quite sure, but the answer would be, yes, in an ideal world.

Next question. Yes, David.

Just wanted to understand a bit better FMSP and how much is linked to the contract renewal discussion in the nuclear division. Is the way I'm reading your chart, the 44, Page 44 with the long term, are you going to break FMSP into two completely separate contracts going forward? So NSIGN is something -- ships will be completely separate to subs? Or is it all part of one big negotiation?

There's a kind of yes and no answer to that, and I'm not being evasive. At the moment, FMSP is broken into lots, and I've tried to not kind of detail that so we didn't get into the discussion or confusion. But yes, the surface ship element of FMSP will transition to NSIGN. So the strategic surface support alliance that is currently delivered under one of the lots under FMSP today will become NSIGN and FMSP at large, hold fast for two minutes, at large will become submarine support effectively.

However, under the Gateway agreement, which is the nuclear new version of FMSP, there will be an infrastructure element to the Devonport site that the surface ships still will rely on. So there is still a link between the two, and that will be managed by our customer. But ultimately, for the actual work and the delivery, there'll be NSIGN and there'll be Gateway.

David, it's probably worth saying that we're not in the -- I don't think we're in the vinegar strokes of any of those conversations yet in terms of where we get to. So there is a good chance that some form of FMSP extension will likely have to be there to bridge any gap between new contracts and old contracts.

Thank you. Any more questions? Or have we stunned you in silence and you're desperate for lunch?

Yes, sorry, gentleman in the white shirt.

Sorry, can you talk about the margin progression towards the 9% plus in marine? I think you talked about 90 basis points expansion from Type 31 roll-off. Any more color there? And then when we get the new build ships as well, do you expect that to be a bit of a -- to lower the pace of progression potentially? How much leeway is there for that?

So obviously, as long as there are Type 31 revenues under the current contract going through, that will weigh on the margin as reported. At the moment, it's about 90 basis points. By 2030, working assumption, they will have worked through the system. And so -- and therefore, we should be with all the new contracts and the better delivery at the 9% plus for the sector as a whole.

And it's -- sorry, it's worth also adding, and I don't know this to be true, but intuitively, it should be that there will be a premium for schedule that customers were going to have to think through. So you want -- if capacity is limited and you want your ships and you want them early, then that's a supply and demand conversation. So David is right to say that we wean ourselves off the Type 31 problem by 2030 and the new contracts will be at significantly better margin.

Jumping next to you first because you got the microphone and then gentleman in the blue jumper.

Ben Varrow, RBC. Just I didn't see or hear anything on the Dreadnought contingent docking facility. Can you add any color on that?

I can. We continue to negotiate with the U.K. government about what that looks like, what it is they want, particularly. So the requirement set is still yet to be fixed. What exactly do they mean by contingent. That will work through the system over the next 6 to 12 months, I guess.

We're working very closely with our nuclear colleagues. So effectively, we own -- the asset is here. The expertise is in nuclear. We will work together to deliver that which the customer requires, which will be a contingent dock in order to support Dreadnought's exit from Barrow and be ready to deliver other things. So watch this space, expect that to be sometime in the next 6 to 12 months. please jump up.

So actually, just a follow-on from George's question on the margin. So just I'm clear, like you get the 90 basis points fades away, so that gets you to the 7% if you use the 6.1% as a start. The other 200 basis points, are you saying that's coming from new ships at significantly higher than 9% margin, therefore, enriching the mix because presumably, the support element of the business, a lot of that's governed by SSRO and things like that, and therefore, the margin is going to be pretty stable. Is that fair or?

No. So all of the things that we laid out at the full year results and they were repeated on those slides contribute to it. So shipbuild, if you can look at all the competitors it's not going to be significantly above 9% unless we get license fees and other incentives, et cetera, et cetera. But today, that's sort of in line. But we've got productivity. We've got overhead savings. We've got all the other factors that have driven margins in the other sectors to still come through as well.

But is it fair to say that the support element will probably be a more stable margin going forward?

Probably.

Thank you. Any more questions? Yes, David again.

[ David Mellor ] will give me the death stare, but I'm going to ask the question anyway. I mean, if we just take what you've said of 5% sales growth and we take the most conservative view of your margin, so let's say, 9%, not 9% plus, and we say it's year five, which is I think the absolute max for the medium term, it's about 90% EBIT growth from where we're starting from. So just can you talk a little bit about the phasing of that? Is it -- are we looking at high teens per year? Or is it hockey stick at the back?

Yes. Okay. So there's quite a few variables in there, not all of which we know. Timing of wins, we can't be precise on. amount of wins, we can't be precise on. So that's the revenue line. Obviously, we've got support with things coming in and out of service as well.

On the margin, what we have said historically, you'll remember, is that on complex programs like Skynet, for example, recently, we will recognize margin at a more conservative level to start with. What we're not going to do is get back to the old habit of recognizing margin full bore at the start until risk has been retired.

So I think -- I don't think it will be a straight line. Obviously, it depends on the timing of wins, but we will be relatively cautious on margin recognition in complex programs to start with.

Thanks, David. So I'm going to call it a day there because we're not being overwhelmed. And I'm going to hand over to Gareth, who as my Chief Operating Officer, gets to do the really fun bit, which is talk to you about Rosyth history and what you're going to do next, which is absolutely the really fun bit. So, Gareth, over to you.