Babcock International Group PLC · LSE:BAB
Babcock International — Investor Day (June 2019)
183 slides from Babcock International's investor day presentation, Jun 5, 2019
Slide 1: Babcock: The trusted partner
Babcock: The trusted partner Capital Markets Day 5 June 2019
Slide 2: Agenda for today
Agenda for today 10:00 Our strategy | Archie Bethel 13:15 Land | John Davies Technology | Jon Hall Aviation | Roger Hardy 11:00 Break and demos Q&A | John Davies, Roger Hardy 11:20 Marine | John Howie 14:20 Break and demos Nuclear | Simon Bowen 14:45 Our Business Model | Franco Martinelli Q&A | John
Slide 3: Introduction
Introduction Archie Bethel, Chief Executive Crown Copyright
Slide 4: What we do
What we do We are a leading provider of critical, complex engineering services across defence, emergency services and civil nuclear markets in the UK and increasingly international 4
Slide 5: Our core strengths
Our core strengths Technology Owned infrastructure Successful and expertise and assets operating model • Operate in regulated environments • Own strategic infrastructure • Customer focused long term • Deep sector specific expertise and assets collaborative relationships • Platform, system, equipment
Slide 6: We apply these strengths to solve customer challenges
We apply these strengths to solve customer challenges Help maintain national Sustain critical and Deliver critical services security and save lives complex assets 35,000 highly skilled people worldwide Integrated with customers through long term partnerships Delivering critical, non-discretion
Slide 7: Safety and regulatory compliance are key to what we do
Safety and regulatory compliance are key to what we do Across the business Nuclear Aviation • “Home Safe Every Day” • Over 30 years experience in highly • Highest levels of safety • Industry leading performance regulated environment • Licensed to operate • Our aim is perfection – target zero • Leadi
Slide 8: What performance to expect
What performance to expect Crown Copyright
Slide 9: Evolution of the Group
Evolution of the Group 2016 Today Medium term Focus on key markets • < 70% from three key markets • c.75% from three key markets • > 85% from three key markets Streamline portfolio • Began focus on key markets • Exiting non-strategic businesses • Complete exits programme Increase international • < 2
Slide 10: Medium term financial targets
Medium term financial targets 1. Earnings growth of 3% to 4% CAGR 2. Sustain margins at around 11% 3. Increase cash flows each year in line with earnings 4. Generate around £1.4 billion of free cash flow over the next five years 5. Continue to reduce net debt and increase flexibility 6. Improve ROIC
Slide 11: Delivering medium term growth
Delivering medium term growth 1. Focus on three markets with strong leadership positions: Defence, Emergency Services and Civil Nuclear 2. Grow revenue from these markets from around 75% of group revenue today to over 85% 3. Develop and operate adjacent businesses for value 4. Grow international rev
Slide 12: Our markets
Our markets Crown Copyright
Slide 13: Our markets
Our markets c.75% >85% c.25% <15% Focus markets Adjacent markets Energy and Marine Rail and Power Defence Oil and Gas aviation South Africa Emergency Services Airports Civil Nuclear 13
Slide 14: Our strategy is built on our three focus markets
Our strategy is built on our three focus markets Defence Emergency Services Civil Nuclear Markets where we have leadership positions 14
Slide 15: Defence
Defence • UK defence – # 2 supplier in the UK – Ten year £178bn MOD Equipment Plan – Growth from long-term programmes – Support across Navy, Army, RAF – Technology driver of growth • International defence – Established presence in Canada, Australia, New Zealand and France – Submarine programmes in S
Slide 16: Emergency Services
Emergency Services • Europe – #1 aerial firefighting provider – #1 aerial medical services provider – Established presence in Spain, Portugal, Italy, France and Sweden – Entered Norway and Finland – Significant opportunities to expand further – UK: air ambulance, police, search and rescue, Met Polic
Slide 17: Civil Nuclear
Civil Nuclear • UK decommissioning - NDA – Large long term programme of decommissioning – UK Government forecasts over £100 billion spend spread over 100 years – Including Dounreay, Magnox, Sellafield • UK decommissioning - EDF – Fleet of aging AGR Nuclear Power stations • UK nuclear services – Oper
Slide 18: Our sector teams
Our sector teams Crown Copyright
Slide 19: New Nuclear sector
New Nuclear sector • Creating single Nuclear sector by combining Civil Nuclear and our UK Naval Nuclear businesses • Benefits: – Tighter alignment with our key UK customers – Brings together nuclear teams: around 5,000 nuclear SQEP qualified personnel – Creating the largest pool of nuclear engineeri
Slide 20: New Nuclear sector is aligned with our customers
New Nuclear sector is aligned with our customers International Ministry of Defence BEIS Naval Defence Defence Equipment Defence Nuclear Organisation Office for Nuclear Regulation & Support Submarine Atomic Nuclear Delivery Agency Weapons Decommissioning Establishment Authority Marine sector Nuclear
Slide 21: Our strategy is delivered by sector across our markets
Our strategy is delivered by sector across our markets Emergency Defence Civil nuclear Adjacent services % group revenue1 52% 15% 10% 23% Marine 21% Energy and Marine Nuclear 22% Rail and Power Land 33% South Africa Airports Aviation 24% Oil and Gas 21 1. See appendix slide 170 for detail
Slide 22: Supported by a strong order book and pipeline
Supported by a strong order book and pipeline Marine Nuclear Land Aviation Group order book Group pipeline £17bn £14bn 19% 29% 34% 35% 23% 29% 17% 14% 22
Slide 23: Significant international presence
Significant international presence UK International • 30% of Group revenue today, moving to over 40% in the medium term • Developing multi-sector, multi-market Order book Pipeline opportunities in Australia, Canada, France and Spain 20% 42% • Aviation in Italy, Portugal and Scandinavia £17bn £14bn •
Slide 24: Our strategy
Our strategy Crown Copyright
Slide 25: Our strategy
Our strategy Build strategic partnerships with our customers Focus on our three key markets Maintain and grow UK business Expand internationally Embed technology across all businesses Manage adjacent markets for value Relentless focus on operational excellence 25
Slide 26: Marine
Marine • Grow the UK Defence business as the trusted partner to the Royal Navy • Build on longevity of key naval programmes both in the UK and internationally • Grow our technology systems, equipment management and consultancy capabilities in defence and adjacent markets • Continue to expand oversea
Slide 27: Nuclear
Nuclear • Grow our UK submarine business – Trusted partner to the Submarine Delivery Agency – In partnership with the Royal Navy, MOD and SDA, continue to develop strategic naval base infrastructure – Continue to develop improved in-service and long term sustainment in support of entire submarine fl
Slide 28: Land
Land • Defence: become the British Army’s strategic readiness partner – Continue to transform DSG – Develop training business – Build on opportunities in UK Defence – Position for international growth in Australia and elsewhere as opportunities arise – Continued operational excellence to improve ret
Slide 29: Aviation
Aviation • Become the largest aerial emergency services provider in the world – Grow share in established countries – Enter new countries and regions • Develop the defence business in existing and new international markets – Become a recognised world leader in flight training – Become a leader in MR
Slide 30: Babcock over the medium term and beyond
Babcock over the medium term and beyond 1 Leader in defence, emergency services and nuclear 2 Long term business with decades of visibility 3 Significant international expansion 4 Increasing technology across all sectors 5 Delivering for our customers 6 Sustainable earnings growth and cash generatio
Slide 31: Technology
Technology Jon Hall, Managing Director
Slide 32: Technology drives value for the Group
Technology drives value for the Group Creates barriers to entry and improves competitive differentiation Supports margins across the business Improves revenue growth across sectors 32
Slide 33: Our technology strategy
Our technology strategy • A trusted partner for our customers in the selection, operation and through-life support of their critical assets • Technical authority to improve customer outcomes • Innovative data capture, analysis and visualisation technologies • Adopting new technologies to drive innov
Slide 34: Technology embedded across our sectors
Technology embedded across our sectors • Technology deployed across the full asset lifecycle in Marine Nuclear our sectors • Applied across the whole asset enterprise: infrastructure, information, supply chain, personnel training • We apply our deep technical know-how to make complex engineering dec
Slide 35: Focused investment in innovative technology
Focused investment in innovative technology Monitor Prioritise Act Digitally enabled asset management Advanced manufacturing Remotely piloted and autonomous systems 35
Slide 36: Example 1: Digitally enabled asset management
Example 1: Digitally enabled asset management • Distinctive Babcock approach to add value in asset operation and maintenance • Exploiting data and digital technologies in asset support • Common foundations and open standards maximise customer value • Gaining advantage from multiple data sources • Mo
Slide 37: Example 2: Advanced manufacturing
Example 2: Advanced manufacturing • Specialist Babcock capability integral to programme delivery and asset availability • Our high-integrity manufacturing capability supports core business activities including new programmes and in-service repair and overhaul • Complex and safety-critical assemblies
Slide 38: Example 3: Remotely piloted and autonomous systems
Example 3: Remotely piloted and autonomous systems • Deliver efficient services in hostile environments • Multiple applications across our sectors • Lua drone developed by Babcock in partnership with local companies and academic partners – Enhances efficiency of current firefighting operations – Red
Slide 39: Collaborating to acquire and develop technology
Collaborating to acquire and develop technology • Customer engagement and formation of partnerships to help our contract bidding • Collaboration with key commercial partners to deliver operational efficiencies • Engagement with SMEs to pull through novel technologies for our customers • Long term re
Slide 40: Summary: our technology strategy
Summary: our technology strategy • A trusted partner for our customers in the selection, operation and through-life support of their critical assets • Technical authority to improve customer outcomes • Innovative data capture, analysis and visualisation technologies • Adopting new technologies to dr
Slide 41: Guide to today's demos
Guide to today’s demos Marine: Nuclear: Digitally enabled decommissioning support solution and submarine support Aviation: Land: Data-led remotely Defence training piloted firefighting 41
Slide 42: Break and demos
Break and demos Crown Copyright
Slide 43: Marine
Marine John Howie Chief Executive
Slide 44: What we do in Marine
What we do in Marine We ensure the UK Royal We support navies around We deliver marine technology Navy goes to sea safely the world through the delivery solutions to improve our by supporting their ships and of complex ship and submarine customers complex, crew around the world sustainment programme
Slide 45: Video: overview of what we do
Video: overview of what we do 45
Slide 46: Marine overview: significant international presence
Marine overview: significant international presence Revenue by market Revenue by geography International revenue by geography 18% 22% 24% 34% £1.1bn £1.1bn 15% £370m 66% 76% 45% Defence Energy and Marine UK International Australia & NZ South Korea North America Spain and Oman 46
Slide 47: Marine overview: what we do
Marine overview: what we do UK Defence International Defence Energy and Marine Submarine Surface Ship Systems & Complex Assets Surface Ship Support Support Support Equipment Support Systems & Systems & Engineering Training Training Design Equipment Equipment Consultancy • Warship deep maintenance –
Slide 48: Solving complex problems for our customers
Solving complex problems for our customers Design and deliver Manage complex Reduce through life Upgrade legacy Enhance platform and highly complex assets critical to the support costs platforms and systems system availability programmes customers’ operations UK Royal Navy Royal Canadian Navy US Nav
Slide 49: Our core strengths
Our core strengths Advanced technology Technical expertise Infrastructure and assets • Design, integrate and support technology solutions • Long heritage of technical authority and innovative • Supporting naval and commercial (Babcock’s & OEMs’) engineering capability marine programmes • Upgrade pla
Slide 50: Core strengths: infrastructure and assets
Core strengths: infrastructure and assets Owned infrastructure in the UK which is critical to the delivery of the Royal Navy’s warship support requirements Managed infrastructure in key international locations to enable delivery of critical warship and submarine sustainment programmes Critical asset
Slide 51: Core strengths: technical expertise
Core strengths: technical expertise Platform life-extension – a unique capability to extend the life of complex marine assets addressing challenging system and structural issues World class training – delivering critical operator and maintainer training for navies with high pass rates Design and eng
Slide 52: Case study: expertise in advanced manufacturing
Case study: expertise in advanced manufacturing UK-US Common Missile Compartment Joint programme • Common Missile Compartment for Dreadnought (UK) and Columbia (US) Class nuclear submarines Babcock involvement • Significant position on high profile US Department of Defence-led programme • Contracted
Slide 53: Core strengths: advanced technology
Core strengths: advanced technology Owned intellectual property: complex systems / equipment design and development – ecoSMRT, Weapons Handling and Launch Systems (WHLS) Through-life support of complex equipment: warships, submarines, weapons and C4ISTAR Design, engineering and management services:
Slide 54: Case study: digitally-enabled asset management - iSupport
Case study: digitally-enabled asset management - iSupport Maintain the asset Enable the maintainer Execute a scheduled Deliver engineering asset maintenance plan applications, analytics, field support integrated training Engineer the asset Digitise the asset Manage the design Optimise design, intent
Slide 55: Video: smart support
Video: smart support Smart Support DIGITAL ASSET MANAGEMENT ‘GLOBAL REACH INCREASED CAPABILITY 55
Slide 56: Our markets: overview
Our markets: overview Defence Surface ships Infrastructure Complex Naval training Submarines equipment Energy and Platform design Advanced Liquid gas Consultancy Marine and engineering manufacturing systems 56
Slide 57: Our markets and growth potential
Our markets and growth potential 10-year addressable Market share Our position Our growth market • Largest support provider to Royal Navy • 75% of complex warship support • QEC support • New programmes allow us to grow UK defence £15bn High • Design and build of specialist systems and above the mark
Slide 58: Defence: significant addressable markets
Defence: significant addressable markets UK and global 10-year International 10-year addressable market addressable market 22% 30% 43% £26.5bn £11.5bn 57% 38% UK International Australia & NZ North America Other incl. Spain and Oman 58
Slide 59: Characteristics of our Marine sector
Characteristics of our Marine sector UK Defence FY19 • Long-term integrated output contracts revenue split • Mix of long term, target cost contracts and short-cycle work • Some customer procurement activity • Nearly all work competed 20% • Lower capital intensity than the group • Sustainable margins
Slide 60: Order book and pipeline
Order book and pipeline Defence Energy and Marine Key opportunities Platforms – new UK Royal Navy platform opportunities Order book Pipeline Training – new UK Royal Navy training opportunities 4% 9% Canada– next phase of the Canadian submarine programme £3bn £5bn Australia – future submarine systems
Slide 61: Our strategy
Our strategy • Grow the UK Defence business as the trusted partner to the Royal Navy • Build on longevity of key naval programmes both in the UK and internationally • Grow our technology systems, equipment management and consultancy capabilities in Defence and adjacent markets • Continue to expand o
Slide 62: Grow the UK defence business
Grow the UK defence business • Deliver on the Type 23 Frigate Life Extension programme • Set the enterprise transformation agenda (with the MOD) for warship support over the next five years • Strategic Partnering Programme with MOD • Launch and deploy a digitally-enabled marine support solution – de
Slide 63: Build on longevity of UK programmes
Build on longevity of UK programmes In service support Potential life extension Design and build Platform support 2020 2030 2040 2050 2060 2070 Type 23 Type 26 Type 31e Albion Class QE Class Systems and equipment Dreadnought WHLS US-UK CMC Astute WHLS Astute replacement WHLS Type 26 AWHS 2020 2030 2
Slide 64: Continue to expand in international target markets
Continue to expand in international target markets • Secure equipment positions on key international submarine programmes • Secure equipment postions on international warship programmes • Secure new strategic HF Communications contracts in Australia and New Zealand • Secure Canadian VISSC 2 and Vict
Slide 65: Longevity of international programmes
Longevity of international programmes In service support Potential life extension / contract extension Design and build Platform support 2020 2030 2040 2050 2060 2070 ANZAC Class (Aus) Canberra Class (Aus) Collins Class (Aus) NZ fleet Support Victoria Class (Can) Systems and equipment Jangbogo III (
Slide 66: Grow our technology capability
Grow our technology capability • Digitally-enabled support solutions • Complex equipment management and inventory optimisation • Weapons handling and launch equipment • Liquefied gas cargo handling and fuel supply systems • Niche segments of the global C4ISTAR market – Communications – Electronic wa
Slide 67: Continued operational excellence
Continued operational excellence • Health and safety our main priority • Deliver efficiency and asset availability improvements for our customers • Output-based contracts allow for strong returns when we deliver for our customers • Application of unique IP and technological know-how in niche markets
Slide 68: Summary
Summary • Leading provider in the UK and internationally • Increasing focus on technology • Growth opportunities in the UK and internationally Medium term target: Revenue CAGR around 4% 68
Slide 69: Nuclear
Nuclear Simon Bowen Chief Executive
Slide 70: What we do in Nuclear
What we do in Nuclear We have supported the We take a leading role in We sustain the entirety of continuous at sea all civil nuclear: from new the UK’s submarine fleet deterrent for 50 years build, operational support to decommissioning 70
Slide 71: Characteristics of our Nuclear sector
Characteristics of our Nuclear sector UK Defence FY19 revenue split1 • Lead provider of engineering support for UK submarines • Long term programmes, complex work and target cost • Owned unique infrastructure • Sustainable returns achievable 29% • Capital intense with significant infrastructure (MOD
Slide 72: Video: supporting the UK's continuous at sea deterrent
Video: supporting the UK’s continuous at sea deterrent 72
Slide 73: What we do: UK Defence
What we do: UK Defence Naval base Through-life support Critical strategic management and life extension infrastructure AWE • Management and operation • Life extension of Vanguard • Own Devonport and • Design and build projects of two of the three UK Class Rosyth Dockyards • Decommission redundant Na
Slide 74: What we do: Civil Nuclear
What we do: Civil Nuclear Decommissioning Nuclear services New build • Programme and project • Concept design, engineering • Design and implementation management and build/manufacture of to fit out Hinkley Point C • Accountable for site bespoke plant and equipment • Positioning and preparing for lic
Slide 75: Nuclear safety and regulatory compliance is vital
Nuclear safety and regulatory compliance is vital • Over 40 years experience as nuclear site-licence holder • Highly regulated environments • Multiple regulatory interfaces • Shared learning across Civil Nuclear and UK Defence businesses 75
Slide 76: Operate across the UK
Operate across the UK Dounreay Defence sites Cavendish Nuclear hubs • Around 5,000 nuclear trained specialists Rosyth • Transferable skills across civil Clyde and defence • Present at every UK nuclear Customers: defence location and civil Sellafield location North West Defence MOD/DNO: SDA, AWE Midl
Slide 77: Supporting Civil Nuclear at multiple sites across the UK
Supporting Civil Nuclear at multiple sites across the UK In operation Dounreay In decommission New build Torness Hunterston A, B Chapelcross Hartlepool Sellafield Heysham 1, 2 Wylfa Trawsfynydd Sizewell Berkeley Bradwell A, B Oldbury Hinkley Point A, B, C Dungeness A, B 77
Slide 78: Our core strengths
Our core strengths Technology and expertise Infrastructure and assets Successful operating model Crown Copyright • Around 5,000 nuclear trained specialists • Own Devonport naval dockyard • Long-term integrated performance based output contracts • Highly skilled programme and project • Own Rosyth nav
Slide 79: Core strengths: technology and expertise
Core strengths: technology and expertise • Centre of excellence for nuclear submarine engineering, operations and submariner training for over 30 years • Transition from Trafalgar Class to Astute Class • Life extending Vanguard Class in preparation for transition to Dreadnought Class • Submarine dis
Slide 80: Core strengths: infrastructure and assets
Core strengths: infrastructure and assets Owned Devonport Vanguard Class refit facility Rosyth submarine dismantling Managed Clyde naval base - Ship-lift Clyde naval base - Astute Class jetty Civil Nuclear - Dounreay 80
Slide 81: Our markets
Our markets UK Defence Civil Nuclear 81
Slide 82: UK defence market
UK defence market 10-year addressable Market share Programmes Our growth market • Trafalgar Submarine support £23bn High • Astute • Grow with the market • Vanguard Naval base • Clyde £2bn High • Grow with the market (Devonport, Clyde) • Devonport Infrastructure £2bn New market • Devonport • New oppo
Slide 83: Civil nuclear market
Civil nuclear market 10-year addressable Market share Programmes Our growth market • Decommissioning framework • Dounreay UK • Magnox reactor decommissioning £10bn Low • Magnox decommissioning (new) • EDF stations • EDF reactors decommissioning (new) • Hinkley Point C UK new build £4.5bn Low • Hinkl
Slide 84: Order book and pipeline
Order book and pipeline Defence Civil Nuclear Key opportunities FMSP – 2020 replacement for MSDF under ToBA Order Book Pipeline Infrastructure – new naval nuclear infrastructure Submarine Disposal Programme - 20+ submarines 57% 37% Sellafield – Nuclear Services project opportunities 43% £4bn £2bn 63
Slide 85: Our strategy
Our strategy • Grow our UK submarine business – Trusted partner to the Submarine Delivery Agency – In partnership with the Royal Navy, MOD and SDA, continue to develop strategic naval base infrastructure – Continue to develop improved in-service and long term sustainment in support of entire submari
Slide 86: Grow our UK submarine business
Grow our UK submarine business • On track to deliver c.£1bn ToBA savings for MOD over 2010-2025 • Future Maritime Support Programme (FMSP) contract for continuation of submarine in-service support and naval base services at Clyde and Devonport • Deliver the Vanguard Class life extension programme •
Slide 87: Build on longevity of multiple UK submarine programmes
Build on longevity of multiple UK submarine programmes In service Life extension Decommission 2010 2020 2030 2040 2050 2060 2070+ Vanguard Class SSBN transition to Dreadnought Class SSBN Trafalgar Class SSN transition to Astute Class SSN Astute replacement Submarine Disposal Programme 87
Slide 88: Video: UK civil nuclear
Video: UK civil nuclear 88
Slide 89: Grow our UK civil business
Grow our UK civil business • Develop market opportunities: – EDF power stations end operation in mid-2020s – Magnox reactor decommissioning and continuous reactor dismantling – Hinkley Point > Sizewell > Bradwell > Wylfa? – Large Sellafield decommissioning opportunities still to come to market • Gro
Slide 90: Develop international markets for civil nuclear
Develop international markets for civil nuclear • Build on UK leadership in high hazard defueling, decommissioning and waste management • Japan: Tokai (Magnox reactor), Fukushima and other BWR/PWR reactors • Canada: decommissioning of shutdown Candu reactors and Chalk River site • Spain: seven opera
Slide 91: Continued operational excellence
Continued operational excellence • Health and safety our main priority • Mainly operate long term, incentive-based contracts structured to deliver both performance and cost benefits to our customers • Continuous innovation used to deliver projects and win new work • Improved efficiency through inves
Slide 92: Summary
Summary • Position supported by owned critical national infrastructure • Partnering with MOD on all submarine programmes • Large opportunities in civil nuclear • Developing international business over the long term Medium term target: Revenue CAGR around 4% 92 Marine Land Aviation Nuclear
Slide 93: Q&A
Q&A Crown Copyright
Slide 94: Lunch and demos
Lunch and demos Crown Copyright
Slide 95: Land
Land John Davies Chief Executive
Slide 96: Land sector
Land sector Land defence Adjacent markets • Long term contracts and enduring relationships • Long term contracts and enduring relationships • Focus on vehicle support • Continue to pursue selective opportunities • Focus on military technical training • Improve operating efficiency to deliver for cus
Slide 97: Characteristics of the Land sector
Characteristics of the Land sector FY19 Defence revenue split • Includes significant JVs, all long term contracts • Non-JV business is focused on vehicle support and training, all through long term contracts 15% • Non-JV business includes procurement (pass-through) • Lower capital intensity 8% 38% A
Slide 98: Our adjacent markets
Our adjacent markets Emergency Services Rail and Power Airports South Africa • Long term contracts • Track renewal and signalling • Baggage system operations • Power generation support, works engineering and plant hire services • Vehicle and asset management • Special projects for national power sup
Slide 99: What we do in Land
What we do in Land We ensure the British Army We enable the British Army Our people support the British can focus on their missions to do their job with our technical Army by contributing to front line safely by supporting all of their training programmes support and joining reserves vehicles progra
Slide 100: Defence focus
Defence focus Vehicle support Training • Through-life support and fleet management for c.32,000 British • Largest external provider of training to the British Army Army vehicles from protected mobility vehicles up to main battle – c.21,000 soldiers every year tanks – c.750,000 training days every ye
Slide 101: Our core strengths
Our core strengths Technical expertise Infrastructure and assets Operating model • Experienced workforce • Operate all DSG sites • Partnering with our customer • Knowledge and understanding of • IT investment to maximise operational • Delivering increased availability for the platforms excellence cu
Slide 102: The Land defence market
The Land defence market 10-year addressable Market share Our position Our growth market UK vehicle • DSG • New programmes and expanded scope allow £8bn High support • ALC JV us to grow above the market • Holdfast (RSME) JV • New programmes and expanded scope allow UK training £8bn Medium • REME us t
Slide 103: A long term business
A long term business • Holdfast (RSME): - 30 year contract to 2038 • Defence Support Group (DSG): - 10 year contract to 2025 - 5 x one year options - Investing in IT systems to develop future efficiencies • ALC - 15 year contract to 2021 103
Slide 104: Land Defence order book and pipeline
Land Defence order book and pipeline UK vehicle support International vehicle support Training Key opportunities DSG scope expansion – procurement gain share and incremental SSS Order book Pipeline Miter - MOD C-vehicles 7% Warrior - Warrior upgrade programme 22% 38% Challenger II - overhaul program
Slide 105: Our strategy
Our strategy • To become the British Army’s strategic readiness partner – Continue to transform DSG – Develop training business – Build on opportunities in UK Defence • Position for international growth in Australia and elsewhere as opportunities arise • Continued operational excellence to improve r
Slide 106: Continue to transform DSG
Continue to transform DSG • Strategic Partnering Programme • Joint improvement programmes • New integrated IT system • Expand scope and move to gain share on procurement savings 106
Slide 107: Develop training business
Develop training business • Develop our individual training activities to new military schools • Extend from our strong base in individual training to collective training 107
Slide 108: Build on opportunities in UK defence
Build on opportunities in UK defence • DSG scope expansion - procurement gain share and incremental SSS • Warrior - Warrior upgrade programme • Challenger II - overhaul programme • Miter - MOD C-vehicles 108
Slide 109: Position for international opportunities
Position for international opportunities • Credibility gained from support to the British Army • Build on significant opportunities in Australia • Position for growth elsewhere as opportunities arise – Initial focus on vehicle support in Europe – France MCO-T 2025 109
Slide 110: Continued operational excellence
Continued operational excellence • Long term nature of our business enables investment to maximise efficiency and effectiveness: – c.£15m in new DSG IT systems – Enhanced procurement efficiency – Improved fleet availability management – Training compression: using technology to deliver enhanced trai
Slide 111: Summary
Summary • Aim to become the British Army’s strategic readiness partner • Positioned for international growth as opportunities arise • Run adjacent markets for value Medium term target: Revenue CAGR around 3% 111
Slide 112: Aviation
Aviation Roger Hardy Chief Executive
Slide 113: What we do in Aviation
What we do in Aviation We save lives with our We protect communities We support the defence aerial emergency medical and with our firefighting of nations by supporting air search and rescue services operations forces in the UK and overseas 113
Slide 114: A typical day: video
A typical day: video 114
Slide 115: Health and safety is our priority every day
Health and safety is our priority every day 115
Slide 116: Our strategy
Our strategy • Become the largest aerial emergency services provider in the world – Grow share in established countries – Enter new countries and regions • Develop the defence business in existing and new international markets – Become a recognised world leader in flight training – Become a leader i
Slide 117: Where we operate
Where we operate 9 EMS sites 7 EMS sites 4 EMS sites Sweden Finland 3 O&G sites Norway 35 defence sites 3 EMS sites 25 sites Ireland UK 19 EMS 1 SAR 5 O&G sites 3 Firefighting sites 28 EMS sites 8 EMS sites Australia 1 defence site Canada France 39 sites 15 sites 6 Firefighting 9 Firefighting Portug
Slide 118: Our core strengths
Our core strengths Technology and expertise Owned infrastructure and assets Successful operating model • Integration of innovative systems • Second largest fleet in Europe • Long term contracts • Skilled workforce delivering • Fleet diversity in terms of aircraft • Strong customer relationships comp
Slide 119: Core strengths: technology and expertise
Core strengths: technology and expertise Aerial emergency medical Aerial firefighting: services: Technology enables us to Innovative technology Night firefighting deliver a market leading Pylon avoidance Modular medical suites 24/7 day and night delivers improved patient aerial firefighting system o
Slide 120: Core strengths: skilled workforce
Core strengths: skilled workforce • 1,300 pilots – Planes and helicopters • 120 medical staff – Doctors, nurses, paramedics • 3,000 engineering, maintenance and base teams – Achieving high aircraft availability levels • Also flight operations, airworthiness, safety, operational control centres and g
Slide 121: Core strengths: scale of our fleet
Core strengths: scale of our fleet • We own or operate a fleet of over 530 aircraft • Target fleet rationalisation from 37 variants down to 12 variants Rotary-wing fleet Fixed-wing fleet 121
Slide 122: Core strengths: fleet management
Core strengths: fleet management Babcock owned fleet Leased fleet • Currently does not match • Babcock operate and maintain contract length, with • May have power by the hour residual value risk at end requirement of contract • Will mostly match lease to contract Customer owned fleet length PAYU New
Slide 123: Core strengths: successful operating model
Core strengths: successful operating model • Long term contracts – Some key contracts are 10 years (Italian firefighting, Manitoba firefighting, Norway air ambulance, LAFT) – Typical length of 3-5 years • Integrated into customer set up – Ambulance control centres – Four operational control centres
Slide 124: Our focus markets
Our focus markets Aerial Emergency Services Defence 124
Slide 125: Aerial emergency services market
Aerial emergency services market 10-year addressable Market share Our position Our growth market Aerial • European regional • New geographies: Europe, Canada emergency £7.5bn Medium • Norway fixed wing and Australasia medical services • Australia (Victoria, Queensland, South Australia) • Manitoba re
Slide 126: Become largest aerial emergency medical services provider
Become largest aerial emergency medical services provider • Maintain leading position in home markets: France, Italy, Spain and Australia • Win new business: contract award in Norway • Target growth in new markets: Europe and Canada • Supported by innovation, higher quality services than competitors
Slide 127: Become the largest aerial firefighting system provider
Become the largest aerial firefighting system provider • Maintain leading position in home markets: award of Italian contract was critical • Expansion into new geographies: award of Manitoba contract • Fast growing market: increase in wildfires and public concern • Supported by technology enablers:
Slide 128: Our aviation defence business
Our aviation defence business Flying training Aircraft support Air station support MRO • Flying training school • Fleet planning and asset • Security and reception • Engine, avionics and • Ground and technical management • Information systems component maintenance training school • Rotary wing maint
Slide 129: Video: example of our military aircraft capability
Video: example of our military aircraft capability 129
Slide 130: Aviation defence market
Aviation defence market 10-year addressable Market share Our position Our growth market • Ascent JV • UK, Spain, France, Canada, Flying training £9bn Medium • UK Introductory training Scandinavia • French Air Force • AirTanker JV • UK, Spain, France, Canada, Aircraft support £2bn Low • PC-21 Austral
Slide 131: Become a leader in aviation defence training and MRO
Become a leader in aviation defence training and MRO • Build on our strengths: – Over 2,000 employees – Full end-to-end offering (pilot trainers, operation and management of aircraft fleets and military bases) • Extend geographic reach: – Canada – Spain Aim to –extend geographic reach into Canada, S
Slide 132: Managing our Oil and Gas business for value
Managing our Oil and Gas business for value • Actions taken: – Refocused the cost base – Rightsized the fleet – Repurposing some aircraft for firefighting – Plan to sell surplus helicopters • Geographic focus: – UK North Sea – Nordics – Australia • Ensuring contracts provide: – Appropriate returns –
Slide 133: Characteristics of our Aviation sector
Characteristics of our Aviation sector FY19 Aviation revenue is c.60% international revenue split Aerial emergency services • Mostly international • High capital intensity • Contract length varies (c.5 years, but can be 10 years) 35% • Fixed standing rates and variable flying rates 47% £1.1bn • Outp
Slide 134: Build on our significant pipeline of opportunities
Build on our significant pipeline of opportunties Aerial Emergency Services Defence Oil and Gas Key opportunities Canada – Canada air ambulance Order book Pipeline Netherlands – search and rescue Canada – Canada military training 24% Spain – Spanish military training 44% £5bn £5bn France – military
Slide 135: Drive efficiency across the sector
Drive efficiency across the sector Aerial Emergency Services Defence Oil and Gas Finland Sweden Ops Ops Norway Ops Ireland UK Ops France Future: • Move to reduced number of • Single back office for UK and EU Portugal operating companies operations Italy Spain • UK • Fleet rationalisation: 37 variant
Slide 136: Summary
Summary • Focused on defence and aerial emergency services • Significant international expansion - become the world’s largest aerial emergency services provider • Develop the defence business in the UK and internationally • Run Oil and Gas business for value Medium term target: Revenue CAGR around 5
Slide 137: Q&A
Q&A Crown Copyright
Slide 138: Break and demos
Break and demos Crown Copyright
Slide 139: Our business model
Our business model Franco Martinelli, Group Finance Director
Slide 140: What I will cover today
What I will cover today Dynamics of the Group Our business model Types of contract How our business model varies by sector Investing to support leadership positions and sustain margins Our financial priorities Medium term financial targets 140
Slide 141: Dynamics of the Group
Dynamics of the Group Government / blue chip customers Complex, Partner- in-depth ships Group critical work Long term contracts 141
Slide 142: Our business model includes long and short cycle work
Our business model includes long and short cycle work Long term Short cycle Procurement related contracts work business c.80% c.15% c.5% Level of visibility: High Medium Low Strategic importance: High Mixed Enabler Margins: > 11% c. 5% c. 0% → c. 5% 142
Slide 143: Tight governance over pipeline to maintain margins
Tight governance over pipeline to maintain margins Contract governance ensures sustained margins: • 7 review Large in-contract growth hurdles in bid process • Focus on Win c.40% delivery of new bids As performance obligations Tracking Decide to bid Bidding Order on contracts are satisfied • Returns
Slide 144: Long term contract accounting: a visual summary
Long term contract accounting: a visual summary Bidding Mobilisation/set-up Delivery Option years Bidding Win Contract Operational Contract starts work starts contract starts ends Revenue Revenue recognised as performance obligations satisfied over time Mobilisation costs Mobilisation Costs amortise
Slide 145: Business model varies by sector
Business model varies by sector Contract type Capital FY19 rebased Target cost / intensity margin1 Fixed price shared risk Marine 13.8% Nuclear 11.2% Land 7.8% Aviation 13.1% 145 1. See appendix slide 170 for detail
Slide 146: Capex to support leadership positions and sustain margins
Capex to support leadership positions and sustain margins Infrastructure Aircraft IT • Protect leadership positions • Maintain barriers to entry • Enhance security • Some MOD funded • Scale benefits • Drive efficiency 146
Slide 147: Our financial priorities
Our financial priorities • Sustain margins at around 11% • Increase cash flow each year in line with earnings: – Manage operating cash flow – Generate significant free cash flow • Continue to reduce net debt and increase flexibility • Improve ROIC from FY20 • Sustainable dividend 147
Slide 148: Sustain margins at around 11%
Sustain margins at around 11% Group margin over time • Track record of delivery 12.0% 11.5% • Group margin supported by order book and 11.0% contract review process 10.5% 10.0% – 77% of revenue in FY20 9.5% – 51% in FY21 9.0% 8.5% 8.0% • Governance over bidding process supports 2012 2013 2014 2015 2
Slide 149: Sustain margins at around 11%
Sustain margins at around 11% • Continuous cost savings: IT investment: − Contract performance – continuous 2015 Today 2022 improvement ERP systems Multiple Two One One − Procurement: HR systems None One UK worldwide − Capability transformed Procurement One Multiple One UK − Strategic partnerships w
Slide 150: Sustain margins at around 11%
Sustain margins at around 11% Continuous cost savings, systems investment, Across Group leverage Group functions, shared services Growth in higher margin areas, continuous improvement, Marine delivering for customers Operational efficiency, growth in nuclear Nuclear services, delivering for customer
Slide 151: Continue to reduce net debt
Continue to reduce net debt Past delivery: Net debt: • Reduced net debt by £368m over four £1,326m years £1,229m £1,174m • £1.1bn free cash flow over four years £1,115m Continue to focus on cash: £958m • Bidding process control • Multi-layered controls • Zero based budgeting Generate £1.4bn free cas
Slide 152: Cash generation gives increased flexibility
Cash generation gives increased flexibility Invest in the Drive growth • Disciplined investment criteria to support ROIC business • Bolt-on M&A if meets hurdles • Well-positioned for any environment De-gear balance Flexibility • Safeguard credit rating sheet • Additional funding for pension schemes
Slide 153: Medium term financial targets: revenue growth
Medium term financial targets: revenue growth Revenue CAGR Marine Around 4% Nuclear Around 4% Land Around 3% Aviation Around 5% Group 3% to 4% 153 Note: Medium term targets, excludes impact of Magnox and QEC as detailed on appendix slide 170
Slide 154: Medium term financial targets
Medium term financial targets Sustainable Sustain Increase cash Reduce net Improve earnings margins: flows: debt: ROIC growth: Generate around £1.4bn 3% to 4% CAGR Stable at around 11% Increase flexibility From FY20 free cash flow over five years With a sustainable dividend Value for shareholders 15
Slide 155: Q&A
Q&A Crown Copyright
Slide 156: Concluding remarks
Concluding remarks Archie Bethel, Chief Executive Crown Copyright
Slide 157: Medium term financial targets
Medium term financial targets 1. Earnings growth of 3% to 4% CAGR 2. Sustain margins at around 11% 3. Increase cash flows each year in line with earnings 4. Generate around £1.4 billion of free cash flow over the next five years 5. Continue to reduce net debt and increase flexibility 6. Improve ROIC
Slide 158: Delivering medium term growth
Delivering medium term growth 1. Focus on three markets with strong leadership positions: Defence, Emergency Services and Civil Nuclear 2. Grow revenue from these markets from around 75% of group revenue today to over 85% 3. Develop and operate adjacent businesses for value 4. Grow international rev
Slide 159: Babcock over the medium term and beyond
Babcock over the medium term and beyond 1 Leader in defence, emergency services and nuclear 2 Long term business with decades of visibility 3 Significant international expansion 4 Increasing technology across all sectors 5 Delivering for our customers 6 Sustainable earnings growth and cash generatio
Slide 160: Thank you
Thank you Crown Copyright
Slide 161: Appendix
Appendix
Slide 162: Sector restatement: FY19
Sector restatement: FY19 Revenue FY19 Restatement FY19 Restated Marine 1,707 (621) 1,086 Nuclear 698 621 1,319 Land 1,620 1,620 Aviation 1,136 1,136 Total 5,161 5,161 Operating profit FY19 Restatement FY19 Restated Marine 221 (80) 141 Nuclear 64 80 144 Land 146 146 Aviation 160 160 Unallocated (3) (
Slide 163: Sector restatement: HY19
Sector restatement: HY19 Revenue HY19 Restatement HY19 Restated Marine 825 (299) 526 Nuclear 338 299 637 Land 798 798 Aviation 616 616 Total 2,577 2,577 Operating profit HY19 Restatement HY19 Restated Marine 108 (32) 76 Nuclear 30 32 62 Land 63 63 Aviation 82 82 Unallocated (3) (3) Total 280 280 163
Slide 164: Sector restatement detail: FY19 as reported
Sector restatement detail: FY19 as reported All values in £m Marine Nuclear Land Aviation Unallocated Total Revenue including joint ventures and associates 1,706.6 698.3 1,620.2 1,135.5 - 5,160.6 Less: joint venture and associates revenue 20.3 465.7 60.2 139.6 - 685.8 Revenue 1,686.3 232.6 1,560.0 9
Slide 165: Sector restatement detail: FY19 adjustments
Sector restatement detail: FY19 adjustments All values in £m Marine Nuclear Land Aviation Unallocated Total Revenue including joint ventures and associates (620.6) 620.6 - - - - Less: joint venture and associates revenue - - - - - - Revenue (620.6) 620.6 - - - - Operating profit before share of resu
Slide 166: Sector restatement detail: FY19 restated
Sector restatement detail: FY19 restated All values in £m Marine Nuclear Land Aviation Unallocated Total Revenue including joint ventures and associates 1,086.0 1,318.9 1,620.2 1,135.5 - 5,160.6 Less: joint venture and associates revenue 20.3 465.7 60.2 139.6 - 685.8 Revenue 1,065.7 853.2 1,560.0 99
Slide 167: Sector restatement detail: HY19 as reported
Sector restatement detail: HY19 as reported All values in £m Marine Nuclear Land Aviation Unallocated Total Revenue including joint ventures and associates 824.7 338.3 798.1 615.8 -- 2,576.9 Less: joint venture and associates revenue 10.5 231.3 15.5 64.8 - 322.1 Revenue 814.2 107.0 782.6 551.0 - 2,2
Slide 168: Sector restatement detail: HY19 adjustments
Sector restatement detail: HY19 adjustments All values in £m Marine Nuclear Land Aviation Unallocated Total Revenue including joint ventures and associates (298.8) 298.8 - - - - Less: joint venture and associates revenue - - - - - - Revenue (298.8) 298.8 - - - - Operating profit before share of resu
Slide 169: Sector restatement detail: HY19 restated
Sector restatement detail: HY19 restated All values in £m Marine Nuclear Land Aviation Unallocated Total Revenue including joint ventures and associates 525.9 637.1 798.1 615.8 - 2,576.9 Less: joint venture and associates revenue 10.5 231.3 15.5 64.8 - 322.1 Revenue 515.4 405.8 782.6 551.0 - 2,254.8
Slide 170: Rebased FY19: split by sector
Rebased FY19: split by sector Revenue: Operating profit: FY19 FY19 FY19 FY19 Stepdowns Stepdowns restated rebased restated rebased Marine 1,086 (80) 1,006 Marine 141 (2) 139 Nuclear 1,319 (256) 1,063 Nuclear 144 (24) 120 Land 1,620 (65) 1,555 Land 146 (24) 122 Aviation 1,136 (9) 1,127 Aviation 160 (
Slide 171: FY19: sector splits
FY19: sector splits Revenue Operating profit Order book Pipeline 21% 19% 22% 24% 27% 29% 34% 35% £5.2bn £588m £17bn £14bn 23% 26% 31% 24% 25% 29% 17% 14% Marine Nuclear Land Aviation 171
Slide 172: FY19: market splits
FY19: market splits Revenue Order book Pipeline 10% 17% 23% 10% 9% 10% £5.2bn 52% 13% £17bn £14bn 8% 67% 66% 15% Defence Emergency services Civil nuclear Adjacent 172
Slide 173: FY19: international splits
FY19: international splits UK vs international International 9% Europe UK 12% 30% South Africa International 43% Australasia 13% North America 70% Rest of world 23% 173 1. Splits based on FY19 revenue
Slide 174: Sector detail: Marine
Sector detail: Marine FY19 Order book Pipeline UK vs international revenue split at 31 March 19 at 31 March 19 FY19 revenue 4% 9% 24% 34% £1.1bn 56% £3bn £5bn £1.1bn 66% 20% 96% 91% UK Defence Defence UK International Defence Energy and Marine International Energy and Marine 174
Slide 175: Sector detail: Nuclear
Sector detail: Nuclear FY19 Order book Pipeline UK vs international revenue1 split at 31 March 19 at 31 March 19 FY19 revenue 100% 29% 37% 43% £0.9bn £4bn £2bn £1.3bn 57% 63% 71% Defence UK Civil Nuclear International 175 1. Excluding Magnox. See appendix slide 170 for splits of reported revenue for
Slide 176: Sector detail: Land
Sector detail: Land FY19 Order book Pipeline UK vs international revenue split at 31 March 19 at 31 March 19 FY19 revenue 15% 29% 30% 28% 8% 38% £1.6bn £5bn £2bn £1.6bn 13% 72% 71% 70% 21% 5% Defence Defence UK Emergency Services Other International South Africa Rail and Power Airports Training and
Slide 177: Sector detail: Aviation
Sector detail: Aviation FY19 Order book Pipeline UK vs international revenue split at 31 March 19 at 31 March 19 FY19 revenue 24% 35% 37% 44% 47% £1.1bn 53% £5bn £5bn 5% £1.1bn 63% 71% 18% 3% Aerial Emergency Services UK Defence International Oil and gas 177
Slide 178: Joint ventures
Joint ventures Babcock underlying JVs Share Country Sector Start End Holdfast (RSME) 74% UK Land 2008 2038 Asset JVs ALC 50% UK Land 2005 2021 Asset JVs • Typically assets and debt Ascent 50% UK Aviation 2016 2033 • Dividends follow after paying down JV debt AirTanker 13% UK Aviation 2008 2035 • Typ
Slide 179: Key contracts: Marine
Key contracts: Marine Contract Customer Start End Country Notes MSDF UK MOD 2015 2020 UK Warship support and surface fleet infrastructure elements of MSDF QEC UK MOD 2005 2019 UK Build and assembly of QEC aircraft carriers in the Aircraft Carrier Alliance VISSC RCN 2008 2022 Can Victoria In Service
Slide 180: Key contracts: Nuclear
Key contracts: Nuclear Contract Customer Start End Country Notes Magnox NDA 2014 2019 UK JV with Fluor, decommissioning, demolition and clean up of 12 Magnox sites MSDF UK MOD 2015 2020 UK Nuclear submarine, infrastructure and nuclear license site elements of MSDF Dounreay NDA 2012 TBD UK JV with CH
Slide 181: Key contracts: Land defence
Key contracts: Land defence Contract Customer Start End Country Notes RSME - Royal School of Mechanical Provision of training and associated support services UK MOD 2008 2038 UK Engineers Joint venture DSG - Defence Support Group Maintenance, repair and overhaul to over 35,000 vehicles of the Britis
Slide 182: Key contracts: Land civil
Key contracts: Land civil Contract Customer Start End Country Notes Eskom Boiler Service Eskom 2011 2019 South Africa Maintenance and generation support contract for 5 power stations London Fire Brigade (LFB) Fleet Technical fleet management of the LFBs 430 vehicles and around 45,000 LFB 2014 2035 U
Slide 183: Key contracts: Aviation
Key contracts: Aviation Contract Customer Start End Country Notes Fomedec French DOD 2017 2028 France Provision of aircraft, training and maintenance to French Air Force HADES UK MOD 2018 2023 UK Air station support. Provision of engineering services and technical aviation services to 17 air station
Babcock International Group — Investor Day (June 2019) on 6ix