Babcock International Group Plc · LSE:BAB
Babcock International — Investor Day (July 2024)
98 slides from Babcock International's investor day presentation, Jul 2, 2024
Slide 1: Welcome to Capital Markets Day 2024
Welcome to Capital Markets Day 2024 Devonport Royal Dockyard
Slide 2: Agenda
Agenda Introduction Andrew Gollan – Director of Investor Relations Babcock today and Babcock tomorrow David Lockwood – Chief Executive Officer Operations and risk management Donna Sinnick – Chief Programme Management Officer Engineering and technology Brad Yelland – Chief Engineering and Technology
Slide 3: Disclaimer
Disclaimer This document has been prepared by Babcock International Group PLC (the By their nature, forward-looking statements involve known and unknown “Company”) solely for use at a presentation in connection with the Capital risks, uncertainties and other factors, many of which are beyond Babcock
Slide 4: © 2024 Babcock International Group - not subject to export control
4 © 2024 Babcock International Group - not subject to export control
Slide 5: © 2024 Babcock International Group - not subject to export control
5 © 2024 Babcock International Group - not subject to export control
Slide 6: Babcock today and tomorrow
Capital Markets Day 2024 Babcock today and tomorrow David Lockwood, Chief Executive Officer
Slide 7: Key messages
Key messages Improving margins Strongly positioned Sustainable growth and cash flow › Around 70% defence revenue* › £9.6bn contract backlog* › Contract terms and discipline › Critical supplier to governments › Supportive markets: military › Enhanced operational, programme capability vs fiscal constr
Slide 8: Presenters
Presenters David Lockwood David Mellors Chief Executive Officer Chief Financial Officer Donna Sinnick Tom Newman Paul Armstrong Chief Programme Management Officer Chief Executive, Land Chief Executive, Marine Brad Yelland Pierre Basquin Harry Holt Chief Engineering and Technology Officer Chief Execu
Slide 9: Who we are
Who we are FY23 Revenue 19% Babcock is an international defence, aerospace and security company providing support and product solutions to enhance our customers’ defence 13% £4.0bn 54% capabilities and critical assets 14% HY24 Backlog 14% With a portfolio focused With a clear strategy for Our 26,000
Slide 10: Our differentiated proposition
Babcock combines extensive experience Our differentiated proposition of customers’ assets in operation with strong engineering know-how and highly collaborative customer relationships Product providers Service providers Availability Product development capability Engineering know-how Customer intima
Slide 11: What this means
What this means Our proposition Our capabilities Complex programme delivery High barriers to entry Frontline Engineering Customer Technology support know-how intimacy and systems End to end support integration through-life Equipment Proven track record support Design, Product develop, Capability tra
Slide 12: Delivering at every step in the asset life-cycle
Delivering at every step in the asset life-cycle Affordable improvements in capability and availability Deep Deep maintenance - Disposal/ 1st commission 2nd commission 3rd commission LIFEX Replacement maintenance capability upgrades second owners UK, Australian and New Modular, adaptable Zealand war
Slide 13: Type 31 / Arrowhead 140 update
Type 31 / Arrowhead 140 update › Five Type 31 ships awarded in 2019 › HMS Venturer (ship 1): float off expected 2024 › HMS Active (ship 2): build in progress – keel laid HY24 › Dispute Resolution Process negotiations completed › A world-class highly agile affordable frigate › A world-class shipbuild
Slide 14: We deliver through four sectors
We deliver through four sectors Military Military support training Naval Marine Nuclear Air operations support Build Training Naval Aviation engineering Marine Land Asset Mission support systems Aviation Land Nuclear LGE Civil Major Submarine infrastructure support Based on FY23 Revenue 14 © 2024 Ba
Slide 15: Who we partner with
Who we partner with Industrial partners Government partners INDONESIAN POLISH NAVY ROYAL NAVY SOUTH KOREAN ROYAL NEW NEW ZEALAND ATOMIC WEAPONS LONDON NETWORK ROYAL NAVY BRITISH ARMY ROYAL AIRFORCE DEFENCE EQUIPMENT NAVY OF OMAN NAVY ZEALAND NAVY DEFENCE FORCE ESTABLISHMENT FIRE BRIGADE RAIL & SUPPO
Slide 16: Supportive market dynamics
Supportive market dynamics Market dynamics Medium term Geographical revenue guidance profile Defence budget growth in focus countries ROW Greater demand for asset availability FRA Organic CAN Focus growth countries: Requirement for greater value-add Mid-single S. AFR UK Australasia digit South Afric
Slide 17: Our growth strategy
Our growth strategy UK International Optimise Selective new Expansion in Direct Strategic position programmes focus countries exports partnerships › Long-term UK submarine › Army Collective Training › Canadian future › Advanced corvette › Jackal high mobility support › UK aircraft autonomy submarine
Slide 18: Leveraging our technical capability
Leveraging our technical capability Australian Defence High Frequency › Optimising our UK market presence drives growth Communications System (DHFCS) › Enhanced execution, underpinned by technical capability and customer intimacy creates incremental and adjacent opportunities › Continued execution a
Slide 19: Building strategic partnerships
Building strategic partnerships SAAB: development of advanced naval corvette design › Central pillar of our international growth strategy Combines our technical naval platform design and integration expertise with Saab’s naval combat › Leverages our technical capability and track record of providing
Slide 20: Developing our people for future growth
Developing our people for future growth Babcock role Babcock Skills Engineering and Engineering capability Early careers framework Academy nuclear skills Diverse engineering projects Today we have 1,500+ people Babcock role framework Developing complex skills for Supporting the national skills acros
Slide 21: Being a responsible corporate citizen
Being a responsible corporate citizen › Contributed £3.3bn to the UK GDP and supported the creation of 56,800 jobs directly/indirectly across the UK supply chain* Contributing to the communities in which we operate › Committed to championing and driving sustainability in the sector as a signatory of
Slide 22: What this delivers
What this delivers Medium term guidance Organic growth Margin Cash conversion Mid-single digit ≥ 8% ≥ 80% 22 © 2024 Babcock International Group - not subject to export control
Slide 23: Operational and risk management
Operational and risk management Donna Sinnick, Chief Programme Management Officer
Slide 24: Key themes of our operations and business delivery
Key themes of our operations and business delivery People deliver through Enabled, accountable and highly People integrated cross functional teams competent workforce Predictable Consistent end to end Lifecycle Agile and integrated delivery, Process Management, supported by ways of working predicabl
Slide 25: End to end risk management framework
End to end risk management framework Internally Funded Projects Capture 3 Purpose 5 Delivery Handover 6 Define 7 Execute 8 9 Initiation and Close 0 Tracking 1 Pursuing 2 Capturing 3 Bidding 4 Closing 5 Customer Funded Projects PRE-CONTRACT SIGNATURE MOBILISATION DELIVERY Contract Risk Phasing DELIVE
Slide 26: The change story
The change story HMS Victorious Deep Maintenance Period › Baselined technical requirements › Strong change control › Improved planning approach › Greater work enablement › Developed infrastructure and facilities › Commercially enabled › Joint working as standard 26 © 2024 Babcock International Group
Slide 27: Engineering and technology
Engineering and technology Brad Yelland, Chief Engineering and Technology Officer 27 © 2024 Babcock International Group - not subject to export control
Slide 28: Engineering and technology
Engineering and technology Babcock is an engineering-led defence, aerospace and security company with a growing technology capability › Our engineering and technology capability has been built up through decades of supporting complex, advanced technology systems and platforms for our customers The d
Slide 29: Being an engineering and technology company
Being an engineering and technology company Defence High Frequency Communications Systems Service providers Product development capability Customer intimacy Engineering know-how Operational asset knowledge Arrowhead 140 general Supporting and upgrading complex systems and platforms has; purpose frig
Slide 30: Capturing learning experience to deliver higher margins
Capturing learning experience to deliver higher margins Complex engineering Higher development and Robust technical risk delivered systems integration management margins programmes › Technical governance and assurance › Engineering capability development › Advanced technology awareness and developme
Slide 31: End to end technical governance framework
End to end technical governance framework Pre contract signature Mobilisation Delivery DELIVERY / EXECUTION 1. Is the proposed technical Ensure we have: Technical reviews aligned with solution compliant (customer engineering life-cycle transition 20% and regulatory requirements)? 1. Defined and plan
Slide 32: Today's defence assets are complex integrated systems
Today’s defence assets are complex integrated systems Vertical air Combat Helicopter flight Small calibre gun Radar and other Communication defence launch management deck and hangar close-in capable sensors systems system system Anti submarine Specific Multiple large Medium calibre warfare towed aut
Slide 33: Supporting complex systems through-life
Supporting complex systems through-life Capability 1st commission 2nd commission LIFEX 3rd commission Replacement upgrades Life of type Extended life (c.20 – 30 years) Capability requirement Increase due to changed defence environment Replacement Capability degradation due to wear and tear and obsol
Slide 34: Leveraging our position to drive profitable growth
Leveraging our position to drive profitable growth Product upgrade requirements Product Integrated Defence Product In-service system system capability Product Improved system Upgraded products Babcock’s historic position Product/platform Prime systems Through-life support Through-life capability par
Slide 35: Developing as a capability partner
Developing as a capability partner Strengthening our through-life support provider position Cementing systems engineering and integrator role › Maturing asset management › Systems engineering and integration › Prognostic health management › System modelling and operational analysis › Data sciences ›
Slide 36: Engineering and technology summary
Engineering and technology summary › Strengthening our technical risk management › Leveraging our knowledge of our customer and their operational requirements to support capability enhancements › Building our knowledge and access to advanced technologies that underpin defence systems › Growing our c
Slide 37: © 2024 Babcock International Group - not subject to export control
37 © 2024 Babcock International Group - not subject to export control
Slide 38: © 2024 Babcock International Group - not subject to export control
38 © 2024 Babcock International Group - not subject to export control
Slide 39: Question and answers
Question and answers 39 © 2024 Babcock International Group - not subject to export control
Slide 40: Will resume at 10:10 (GMT)
Will resume at 10:10 (GMT) 40 © 2024 Babcock International Group - not subject to export control
Slide 41: © 2024 Babcock International Group - not subject to export control
41 © 2024 Babcock International Group - not subject to export control
Slide 42: © 2024 Babcock International Group - not subject to export control
42 © 2024 Babcock International Group - not subject to export control
Slide 43: Land
Land Tom Newman, Chief Executive, Land
Slide 44: Land
Land FY23 revenue HY24 backlog Our c.8500 strong workforce delivers: 7% › Build: military vehicle build, engineering, and systems integration Defence UK 32% 36% › Support: strategic asset management and through-life engineering Defence International 24% support for military equipment; engineering se
Slide 45: Key contracts
What we do Build Support Train › Training design, delivery, › Military vehicle build and › Strategic asset management assessment and support for systems integration and engineering support mission critical customers › Civilian armoured and specialist › National infrastructure › Training infrastructu
Slide 46: Global context: strategic shift in Land domain
Global context: strategic shift in Land domain Tactical mobility vehicles, increasing manoeuvrability and situational awareness Achieving ‘more for less’ with existing equipment Conflict in Ukraine Long-range fires and artillery systems First-generation outsourcing Maximising value and efficiencies
Slide 47: Global context creates significant opportunities
Global context creates significant opportunities Key growth opportunities Our competitive advantage BUILD › Deep expertise in operational support › Land Mobility pipeline › UK civilian armoured vehicle market leader Opportunity size: › Mobile Fires Platform; 120mm mortar › Customer intimacy drives b
Slide 48: Case study: high potential military product business
Case study: high potential military product business From civilian armoured vehicle conversion to the design, build, and through-life upgrade of militarised mobility vehicles Civilian armoured vehicle Babcock General High Mobility Land Mobility (LC300) Logistics Vehicle Transporter (Jackal 3) pipeli
Slide 49: Case study: Strategic Asset Management
Case study: Strategic Asset Management Evolving from MRO to digital sustainment products, material availability services and equipment life extensions Past: Manpower substitution Present: Leading strategic partner to the British Army Developing: Insight and export › Unparalleled technical understand
Slide 50: Land summary
Land summary › Refocused and upgraded capabilities – Build, Support, Train › Investment in leading technologies to give us a competitive edge › Macro environment is generating demand across our customer base › Quality of opportunities enable at least 8% sector margin in medium term 50 © 2024 Babcock
Slide 51: © 2024 Babcock International Group - not subject to export control
51 © 2024 Babcock International Group - not subject to export control
Slide 52: © 2024 Babcock International Group - not subject to export control
52 © 2024 Babcock International Group - not subject to export control
Slide 53: Aviation
Aviation Pierre Basquin, Chief Executive, Aviation
Slide 54: Aviation
Aviation FY23 revenue HY24 backlog Our c.3000 strong workforce delivers 9% 6% › Military training for the two largest Air Forces in Europe 27% Defence UK (France and UK), training pilots and operators from university 33% Defence International through to combat operations 29% £0.4bn £1.6bn Civil Inte
Slide 55: Capabilities
What we do Military training Military support Critical air operations › Global end-to-end military flying training › Through-life support of military flying assets, › Operate government programmes to deliver › Provide, integrate and maintain training including line, base and overall maintenance, cri
Slide 56: What differentiates us
What differentiates us Customer intimacy Operational asset understanding Engineering know-how › Embedded into Air Forces and their › Extensive experience of providing › Platform agnostic, we deliver tailored organisations. We deliver alongside operational support and training on solutions to Air For
Slide 57: Supportive market dynamics
Supportive market dynamics Market trends Our strategy for growth › Geopolitical situation driving higher demand from Air 1 • Focus on core geographies and defence Forces for both support and training › Increasing military aircraft acquisition driving higher 2 • Expand into selected territories volum
Slide 58: Targeted growth opportunities
Targeted growth opportunities 1 Focus on core geographies and defence 2 Expand into selected territories › From France into Europe › Expand military training: MENTOR2, transport and helicopter › From the UK into NATO › Diversify air operations: fixed-wing, intelligence and surveillance › Develop Avi
Slide 59: Near term growth opportunities
Near term growth opportunities Around £3bn of contract opportunities targeted over next three years, of which c.£1.7bn is under active bidding › Average contract c.£300m / 12 years duration › 80% international › 75% in defence Multiple, multi-year growth opportunities underpin medium term guidance 5
Slide 60: France – success story
France – success story › Revenue up 10x since FY16, driven primarily by defence opportunities (now c.80% defence) › Grown our position as the leading training partner to the French Air Force › The largest engineering partner for Armed Forces’ medium size helicopters (H160, H145, H135) › Strong partn
Slide 61: Aviation summary
Aviation summary › International business delivering training and engineering services to Air Forces and critical air operations to save lives and protect communities › The wide range of our activities, from asset conversion, operational and through-life support, and training is a core differentiato
Slide 62: © 2024 Babcock International Group - not subject to export control
62 © 2024 Babcock International Group - not subject to export control
Slide 63: © 2024 Babcock International Group - not subject to export control
63 © 2024 Babcock International Group - not subject to export control
Slide 64: Marine
Marine Paul Armstrong, Chief Executive, Marine
Slide 65: Who we are
Who we are FY23 revenue HY24 backlog Our c.5200 strong workforce delivers: › Design and build of warships for the UK and international markets 16% 16% › Warship through-life support programmes Defence UK › Submarine and equipment through-life design and support › World leading commercial liquid gas
Slide 66: What We Do
What We Do Design, develop, manufacture and integrate specialist systems, and deliver technical through-life support Design Build Integrate Support Complex platforms, systems and Digitally-enabled, high-integrity Integration of complex technology Through-life support, life extension equipment design
Slide 67: What differentiates us
What differentiates us Customer Operational asset Product development ‘Best of class’ intimacy understanding and systems expertise integration capability › Long term warship support › In-service support to every UK › Market-leading adaptable naval › Delivering multi-OEM solutions partner to UK, Cana
Slide 68: Developed capability: support to global design and build
Developed capability: support to global design and build Operational asset Customer ‘Best of class’ Product development understanding intimacy integration capability and systems expertise Arrowhead 140 licences QEC Aircraft carriers, for global frigate market Long-term warship support Developed Arro
Slide 69: Unmatched submarine weapons systems experience
Unmatched submarine weapons systems experience Over 50 years experience in providing weapons handling and launch systems (WHLS) to global navies with safe, proven, effective and reliable solutions Babcock-owned IP Global leader in WHLS Critical UK supplier New-build opportunities Trafalgar, Vanguard
Slide 70: Supportive market dynamics
Supportive market dynamics › Growing focus on defence capability due to ongoing Our growth strategy conflicts supported by increasing defence budget, NATO expansion and global instability 1 Optimise position › Desire for affordable indigenous sovereign shipbuilding and 2 Selective new programmes in-
Slide 71: Marine growth strategy
Marine growth strategy UK International Optimise Selective new Expansion in Direct Strategic position programmes focus countries exports partnerships › Platforms, systems and › New ship programmes › Canadian future › Ukraine opportunities › Advanced corvette equipment support › Space and defence sub
Slide 72: Expertise driving international opportunities
Expertise driving international opportunities Our long-standing support expertise driving international growth UK Royal Navy Babcock, UK and Ukraine Ukrainian Naval Platform capability Ukraine MCMV support Office opened mine counter measure MOD tripartite Capabilities Enhancement Programme (UNCEP) u
Slide 73: Marine summary
Marine summary Positioned for profitable growth › New market entrant and disruptor in global frigate segment with proven export credentials › Significant pipeline of UK and International shipbuilding opportunities › Future profitability will improve over time from mix of new contracts entered under
Slide 74: © 2024 Babcock International Group - not subject to export control
74 © 2024 Babcock International Group - not subject to export control
Slide 75: © 2024 Babcock International Group - not subject to export control
75 © 2024 Babcock International Group - not subject to export control
Slide 76: Nuclear
Nuclear Harry Holt, Chief Executive, Nuclear
Slide 77: Nuclear
Nuclear FY23 revenue HY24 backlog Our c.10000 strong workforce supports nuclear assets through life: 5% › Complex engineering support to the entire UK nuclear submarine fleet 14% › Management of critical national infrastructure at Devonport, Faslane and Rosyth Defence UK › The world’s first nuclear
Slide 78: What We Do – Defence
What We Do Whole life support to nuclear assets Design Build In-Service operations Defuel and dismantle › Major infrastructure capital › Maintain the whole UK Defence › SSN-AUKUS and Dreadnought submarine fleet › Nuclear submarine dismantling projects for new submarine classes submarine design (not
Slide 79: What differentiates us
What differentiates us Customer Operational asset Engineering Unique intimacy understanding know-how infrastructure › Long term UK MOD submarine › Support to every class of UK › UK’s largest nuclear workforce › Own and operate highly support partner nuclear submarine for civil and defence (10,000) r
Slide 80: UK submarine fleet transition underpins growth
UK submarine fleet transition underpins growth Deep Maintenance UK submarine long-term in-service and disposal Programmes 2020 2050 2080 Vanguard Class Dreadnought Class Deterrent Future Continuous Submarines at Sea Deterrent Astute Class SSN-AUKUS Future attack (platform numbers TBD) submarine Atta
Slide 81: Growth
Growth Macro trends Programmes Opportunities Duration Total value* Status Long term submarine partnership: in-service 2026 - 2050s £30-50bn Incumbent CASD 50+ support for increased UK fleet (11 up to 16 boats) Global years security Naval infrastructure: Devonport and Clyde major Now - 2035 £6-8bn In
Slide 82: Case study: HMS Victorious deep maintenance period
Case study: HMS Victorious deep maintenance period Estimated total Optimised Deliver 15+ contract value: working years c.£500m patterns more service Deep Customer intimacy › Contracting differently understanding of assets › Innovative technologies Strip and Innovative Investment in Significant repla
Slide 83: Case study: Partnering with HII
Case study: Partnering with HII Rationale Complementary capabilities Shared challenge of Strong infrastructure Mutually beneficial in nuclear maritime asset dealing with legacy and support proposition access in UK and US build and support nuclear platforms for AUKUS markets Partnership status Mutual
Slide 84: Nuclear summary
Nuclear summary Market Trends and Position › Global insecurity is driving the prioritisation of UK MOD funding into nuclear defence enterprise (submarines and AWE) both of which are core, long term markets for Babcock which has strong incumbent positions › Net Zero and Energy Security agenda are cat
Slide 85: Financial summary
Financial summary David Mellors, Chief Financial Officer
Slide 86: What we have delivered so far
What we have delivered so far Revenue* Operating profit* Margin* Backlog** + 19% + 30% + 60bp + £3.2bn to £4.0bn to £265m to 6.6% to £9.6bn Credit rating Net debt+ Defence revenue++ Dividend Upgraded 2x down c.£1.1bn +13pp to 69% reinstated to £(493)m to BBB+ (stable) Improved focus, a strong founda
Slide 87: Balance sheet significantly stronger
Balance sheet significantly stronger £m (1,600) Net debt reduced by c.£1.1bn (1,400) › Gearing reduced from 2.8x (HY22) to 1.1x (HY24) › Target range of 1.0x to 2.0x EBITDA (1,200) › S&P credit rating upgraded to BBB+ (Dec 2023) › Ample liquidity, in excess of £1bn (1,000) (800) (600) Pension defici
Slide 88: Creating shareholder value
Creating shareholder value Improvement in performance Disciplined capital allocation Organic growth Margin Cash Mid-single conversion digit ≥ 8% ≥ 80% Shareholder value generation 88 © 2024 Babcock International Group - not subject to export control
Slide 89: Capturing good quality growth
Capturing good quality growth Organic growth Mid-single digit 89 © 2024 Babcock International Group - not subject to export control
Slide 90: Creating shareholder value
Creating shareholder value Improvement in performance Disciplined capital allocation Organic growth Margin Cash Mid-single conversion digit ≥ 8% ≥ 80% Shareholder value generation 90 © 2024 Babcock International Group - not subject to export control
Slide 91: Medium term guidance – margin improvement levers
Medium term guidance – margin improvement levers Low margin legacy contract ‘fade’ Overhead rationalisation Systems upgrades Process Medium term guidance optimisation/ simplification Productivity gains Margin ≥ 8% Growth of quality business Margin today Medium term 91 © 2024 Babcock International Gr
Slide 92: Creating shareholder value
Creating shareholder value Improvement in performance Disciplined capital allocation Organic growth Margin Cash Mid-single conversion digit ≥ 8% ≥ 80% Shareholder value generation 92 © 2024 Babcock International Group - not subject to export control
Slide 93: Medium term guidance – high cash conversion
Medium term guidance – high cash conversion How we achieve it Medium term guidance › Improved bidding › Programme execution › Working capital focus › Short term: good cash conversion but with: Cash › Investment ‘catch up’ conversion › Working capital over performance in FY22 and FY23 ≥ 80% › Legacy
Slide 94: Creating shareholder value
Creating shareholder value Improvement in performance Disciplined capital allocation Organic growth Margin Cash Mid-single conversion digit ≥ 8% ≥ 80% Shareholder value generation 94 © 2024 Babcock International Group - not subject to export control
Slide 95: Capital allocation framework
Capital allocation framework Priority 1 Organic investment Sustain investment to support business operations and enhance growth potential 2 Financial strength Maintain strong balance sheet and investment grade rating 3 Ordinary dividend Pay an ordinary dividend Further capital options Shareholder re
Slide 96: Summary: confidence in driving value
Summary: confidence in driving value Disciplined capital allocation Clear financial targets Strong foundation 96 © 2024 Babcock International Group - not subject to export control
Slide 97: Key messages
Key messages Improving margins Strongly positioned Sustainable growth and cash flow › ~70% defence revenue* › £9.6bn contract backlog* › Contract terms and discipline › Critical supplier to governments › Supportive markets: military › Enhanced operational, programme capability vs fiscal constraints
Slide 98: Question and answers
babcock CAPITAL MARKETS DAY Question and answers
Babcock International Group — Investor Day (July 2024) on 6ix