Good morning, everyone, and welcome to the half-year results for the period to 30 September 2025. My name's David Lockwood, CEO of Babcock. We've got a very exciting 29 and a half 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, obviously, health and safety comes first in our company. If it does happen, it will go on for a minute. You need to pay attention for 29 and a half minutes, and then you can do your emails for a minute, okay? 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. 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. 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. 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. That has left us with a confident outlook for 2026 and also an ability to recommit to our medium-term guidance. Before I come back and do all of that color, David will put that into a financial context.
Thank you very much. Good morning, everyone. That way. Okay, my main three messages for today are: this is a really good set of interim results on all financial measures, number one. Number two, the margin improvement, 7.9%, is encouraging and gives us confidence in the 8% full-year target. 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, then. There are some pretty positive numbers on this summary slide, and I'll move through them fairly quickly before we come back to detail. Organic revenue growth was 7%. Operating profit margin increased 90 basis points to 7.9%. These first two 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. We have executed GBP 49 million of the share buyback in H1 and will complete the rest over the course of H2. Let us 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, with good performances in marine and aviation. The land sector revenues were lower in the period as a result of the non-defense businesses, and I will 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%. Whilst we're on margin, we set ourselves a target of 8% for this year, as you know, and 9% + for the medium term. 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 will 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. That gives us confidence in the 8% for this year and the 9% + in the medium term.
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 2021. I know full year 2021 was a low base for all sorts of reasons, but we have had a few issues to deal with along the way. Doubling in those five years was not bad at all. That is the summary. Onto the sectors. These are the usual busy sector slides, with lots of content for reference. I will 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 shipbuild market dynamics, and we're delivering that over this period and the start of next. You know, 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. 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. You know, they—we booked the revenues at zero margin on Type 31. 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.
I'll just expand on those a little. 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 nine dock last year and 15 dock nearing completion. 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 non-defense 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. Pleasingly, despite the top line, margins still managed to progress 20 basis points, with the overall sector now at 7.9%. Onto aviation. We have 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. The 26% organic growth was due to three 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. 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 three years ago, the pension cash outflow was GBP 90 million in the half, nine-zero, and now, as you can see, it's seven.
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 is a little bit of inventory increase in there, and then the usual pattern of payments, VAT, and annual licenses and what have you. Basically, the rest of working capital was largely flat, which was good. CapEx was GBP 46 million for the half, very similar to the first half of last year. CapEx will be H2-weighted. Lastly, I have 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. 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 18-24 months. 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 five-year facility with extension options, and we expect to refinance the first of the bonds in Q4. 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 number one, 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 two and three, the balance sheet, the dividend, we've already mentioned. On the three 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 new news. That's tracking really well, so, all going okay. On the right-hand side, shareholder returns, you know we're executing the GBP 200 million share buyback. The buyback also serves as an investment return floor for other options to beat, before they get considered. Before I hand back to David, I'll just go back to the summary again. Point one, really strong half on every measure. Two, margin progression, very encouraging, and the 8% margin for the year is in sight. Three, given the revenue cover at the half, we're confident in the full year. With that, I'll now hand back to David.
I'm not doing my emails. 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. I just thought, because we're bound to get questions, I'd try and not get questions by talking about it quickly here. I see the next 12 months for Type 31 is important, but then every 12 months is important. The way we see Type 31 is in two chunks. Chunk one is ship one. We need to finish ship one, which is always going to be the prototype because it's first, 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. That's a project. I don't think of that as a product. That's a project to finish Type 31, to finish ship one. 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 two to five are all about production and production norms and so on. If we look at ship three, 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. There are two distinct things: driving a production facility, building a pipeline of ships, and finishing the prototype. Those two things will 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. That's kind of how we see it. That's why there's sort of nothing to talk about. That's why I haven't got a slide, because the project on finishing one is the project, and then the production build is the production build. No questions on Type 31, please. David did a couple of history charts. We said five years ago two 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, that there was no lack of market. We just had to perform. Our performance, as you have seen, has improved and improved. I've just got a couple of examples of how that's worked.
What five years ago, the DSG contract was in a lot of trouble. We'd 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 five-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 contract for frontline support in places like Ukraine, where we have people deployed. Also, that confidence people have in us as an engineering company in the land domain means we've delivered the Jackal program. 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 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 Armored Vehicle program in Europe, led by Patria, the 6x6 variant, which the U.K. has just joined. DSCI joined the program, the technical program, which is the step towards buying the vehicle, where we are the U.K. build partner and engineering partner. Again, could not have happened with our performance of five years ago. Now we are the natural choice. Finally, for the 120 mm Mortar Program, that is Singapore Technologies, Singaporean engineering, world-renowned.
They do not work with companies that do not match their engineering standards. We have gone from fixing a legacy U.K. program, which the outside world thought was a disaster case, through to three 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. That is how delivery does not just drive margin and growth in what you do, but it changes your reputation. The same is true. David talked about expanding missile tubes. Missile tubes, we have 80% of the Joint Columbia Dreadnought program. This is a key component of, in fact, it is central to, literally central. It goes right in the middle of the submarine. It is central to the next generation deterrent submarine for the U.K. and the U.S.
We have 80% of the delivery when the program is dominated by Columbia. Obviously, they buy a lot more Columbias than the U.K. buy Dreadnought because our engineering is the best in the world at doing these things. That growth gets driven by our investment in automation, all the things David talked about. Those techniques are the ones that are driving the improvements in Type 31, so that ship three is this real high-value, low-cost production build ship. You can take production norms across because you know you can do complex things well, but also because it is 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.
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 roles of build reactors, but everything that goes around it, which is very significant. It is the most obvious place to build it. Because of our pedigree and because of the lack of build capacity in the world, moving into broader submarine build. Going from an okay high integrity engineering program to being a recognized world-class, high integrity engineering facility in five years is quite a thing and drives a whole host of opportunities. There are multiple other areas in the business where we could make the same track through. 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? What is the demand? It's driven, as we said at the full year, by global insecurity and threats. Share prices move around with, 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 statements, but the world is materially less secure now than it was five years ago. For all the reasons I've just outlined in two 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 DSCI, we're now combining some innovative digital.
In fact, we launched our first AI product at DSCI. We're combining the ability to get the best out of legacy while delivering new at the same time. I think that's a unique combination. 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. 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. I think all of that is really good. If you look at us in the U.K. in U.K. defense, having a resilient industrial base is really important. That is physical, that's facilities.
It's the equipment and infrastructure we have on those facilities and it's people. We are a people-based business. David said there's some strategic investment necessary to drive this growth, and it's true. There is also our commitment to people and investing in skills. A couple of things, which I, as I said to the press this morning, I get quite frustrated about because I think this is one of our biggest achievements, people. I think the people pipeline will drive our high-quality growth. Just a couple of facts. We were Company of the Year for the Association of Black and Minority Ethnic Engineers. Now, is that a big thing or not? It wasn't Google. It wasn't Oracle. It wasn't people. It wasn't IBM. 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. We won. Okay? I think that's pretty cool, from where we came from. We've got a 35% increase in our minority representation in our early careers. I think that's pretty cool. This year, we had our highest intake of early careers. That's apprentices and grads to you and me. Highest intake. We also had the highest subscription. Not only did we take more, but we had more candidates for every post than ever before. For the first year ever, our intake was 50/50 gender balanced.
From where we were five years ago as an employer, we are in just an utterly different place. That pipeline of people is necessary to drive the pipeline of growth. I think that's really cool. You can see all the other things that leads to. You know, we spend $550 million with small and medium enterprises. 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 $4.3 billion to the U.K. economy, which is pretty important in the current climate. You can read the whole slide at your leisure.
You know, we are we and we are working with government. I spend a lot of time with government, and I'm a core member of the Defense Industrial Joint Council. There are some permanent and some rotating members, driving how the U.K. defense does its business differently. We are right across U.K. defense from the people, the supply chain, and into government. Nuclear, it's great that nuclear is now cool. I think, civil nuclear, there's the big stuff, you know, Hinkley and Sizewell C. There are SMRs, MEHs, and 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. We are the lead in the alliance that's growing dramatically, and we have seen actually real progress more than I would have guessed six months ago.
We know where the first three SMRs are going to go. We did funded work for Centrica and X-energy. We're X-energy's U.K. partner for AMRs in Hartlepool, which is a massive rollout. Real momentum, more momentum, I would say, in civil nuclear than I was expecting in the last six months. I think that's really positive. We all know about defense nuclear. David's touched on the numbers. I will talk about the FMSP follow-on. 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 on the 31st of March next year. We've been busy with funded work to work with the customer on the successor program.
If you look at five years ago, when we were doing the work, 2020-ish, just as I was coming in, that was pre-full invasion, pre the current Chinese activity. The FMSP is very much a cost-driven program. The metrics are very cost-driven. The successor is going to be very output-driven because five years later, what we really need is submarine availability, not cost out. That is just the changing environment. It is 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.
You should not in any way, in fact, I had a call with government yesterday on this, and we are all completely aligned that the job is to get the right contract for both of us. You know, the fact it might take us right to the, you know, we might end up using every minute through to midnight on the 31st of March when I should be relaxed and David will be having kittens. You should not worry about that. It's because we are trying to, you know, this is genuine transformation. Then AUKUS, H&B Defence, our joint venture with HIS, finally got its first orders. There's a lot of activity now in Australia.
I think the President Trump review definitely shone a light on some of the areas where we were moving forward, but not fast enough as the three nations. I think we'll see a lot more progress on infrastructure, training, and support in the next 12-18 months. All together, nuclear looking really positive. Where does that lead us then? For those of you who came to the Rosyth Capital Markets Day teaching, whatever we called it, you will have seen the scale of our capability, but also the scale of opportunities in Denmark, Sweden, Indonesia, and New Zealand. There is a lot to be decided in the next 12-18 months. I think since we stood up at the full year, all of them have progressed positively from our point of view.
You know, nothing's done till it's done, and these are big governmental decisions. You've got to win the officials over, and then you've got to win the political debate. It's not done till 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, that, you know, 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. We just look across that without even thinking about the fact we've won our first defense order in South Africa on submarines or, you know, 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.
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 just shows that we are now firmly established on the international stages as one of the credible partners. Summary, I'll summarize David's summary. By the way, it's 9:32 A.M., so no alarm. That was cool. 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 six months to six months, but establishing multi-year relationships with governments and industrial partners that will underpin sustained consistent growth.
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. 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.
Thank you. [Zack Cheuse] from HFC Partners. It's a marine question, but not a Type 31 question.
Good.
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.
Yeah, I'll go there. It is definitely a record order intake. If you remember, for two or three years, we were waiting for them to come, and then it all came in a period. 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 shipbuild market.
Okay, thank you. An aviation question. BAE, Boeing, Saab announced teaming to offer T7 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?
As you know, the Hawk is outside the scope of MFTS anyway. We go up to the Textron, we go up to the Textron, and then we do the maintenance of the legacy Hawk fleet, but BA Systems supply it. It's not a particularly big thing. There's still a debate about how government will procure the next jet trainer.
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. Yeah, they clearly want to grab more of the syllabus.
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 leading jet is multiple times the cost per hour in the turbo, turboprop. 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.
Okay, thank you.
At the front, on your right.
Thanks. Morning, 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. 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? I guess in particular, in the U.K. nuclear business, one would guess that demand for labor significantly outstrips supply at the moment. What you're doing, what initiatives you're taking to sort of combat any unwanted attrition in that side of the business?
Okay, I'll do the people one. David can do the number one. You're right. Our churn rates are significantly down. It is a bit regional. For it's not so much the businesses in, it's the business location. 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 Bristol. It's more a regional issue than an activity issue. 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.
We've got a Babcock bus, actually, a big blue double decker bus that is going around all our sites doing open sessions. We've had, we've got 10,000, I think, more inquiries in the U.K. onto that or onto all our employee platforms now or as a result of that compared with a year ago. We're taking all of those, and I could go 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. If I look at our global people survey, which we do every year, which finished a month ago, a lot of those measures, which are kind of indicators of attrition, you know, would I recommend the company as a place to work? Do I think I'm going to be here in five? All of those continue in a positive direction.
Interestingly, when we did the board presentation two days ago, there were a number of those metrics where, against the benchmark, 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 three or four years. Ours are going forward. We are kind of bucking the trend on engagement. Lots of stuff, actually.
On the margins, 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 is not that helpful. If you look back, the margins really sort of inflected about a year ago.
If you look at second half of last year, first half of this year, you'll see a trajectory that, you know, 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, LGU and SKYNET and Marine. The business is going forward in nuclear infrastructure coming off a bit, rail in land, and everything going well in aviation. 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.
Hi, thanks, David Farrell from Jefferies. I think I've got three questions. Firstly, in the release, you talk about a 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?
Yeah, 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 a kind of conflict of interest thing that they're managing. You can't sit both sides of the equation. You can't set the question and answer it. I think that's just for the current rollout. 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, thanks. Some of your peers have obviously suffered in the wake of the SDR, in 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.
Yeah, I think you've answered the question almost. We have a very different characteristic. Like some others, we have a framework and then call off. For us, the framework is the dominant bit, and the call off is kind of the icing. Whereas in some other contracts, the framework's a smaller part, and therefore the call off is more important. I think it's just the structure of the contracts, really, that we have more resilient contract structures.
Okay, and then probably for the other, David, a question around the bond refinancing.
Oh, no, I'd like to answer that.
Okay, I wouldn't, I wouldn't, I wouldn't. It's quite simple.
Yeah, thanks. You're saying he can't do simple.
He's saying you can't do simple.
Probably right.
Do you need to refinance both of them at the same size?
No. I think, you know, size, duration are things that we will work on over the next few months.
Okay, thanks.
Morning, [George McWise] 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.
Sort of, but we can't obviously any specifics, as David said, there are a couple in process that are covered by NDAs and confidentiality. 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. We've already done, you know, we talked about the need to become more digital. We've talked about the need to have greater access to autonomy and so on. You could imagine that anything we're looking at is consistent with the strategy we laid out 18 months ago.
Thank you. 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? Thank you.
What can I say that I haven't already said? 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. It wants to do it efficiently. 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. It kind of depends who does what on investment profile and some of the things that David talked about, about what. There could also be scenarios where you would have things outside, a bit like MIP is outside FMSP, and yet it exists, as David describes, to drive it. There's kind of what's inside and outside the envelope. That's all the stuff we want to get right so that we don't 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.
Morning, [Chris Bambury], three questions, if I may. First, in terms of the pipeline, what are the major decisions you're expecting over the next 12 months?
We said at the Marine Capital Markets Day that, you know, if a number of customers want to hit their in-service dates, they have to make their decisions in the next 12-18 months, and that was three months ago. We had that said that. That's probably still about true. It's now nine 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. We're encouraging all of those decisions to get made early. 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. I am optimistic those decisions will get made in that period and hopefully towards the front end of that period.
Second, you've 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.
Yeah, I mean, I think for almost since the Rainbow Nation started, South Africa hasn't really had an identified need for a defense force. It has kind of gone backwards for a period. 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. I think, actually, for different reasons from some other markets, there's now recognition that they need to reactivate. If we execute this program well, I'm very optimistic for 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. It's an ideal sort of market for us.
Final question, could you give us perhaps a bit more color on how DSG's performed under the new contract? Thank you.
Yeah, so far, so good, really. Nothing else to say. It's going well. I can't think of.
It is going. We're not going to give all the internal KPIs, but yeah, mobilization's good. Mobilization's good.
Hitting all the KPIs, etc.
Sorry?
Hitting all the KPIs, etc.
No one hits all the KPIs.
A reasonable number.
Yeah, if we hit all the KPIs, they would argue they've set the wrong KPIs. You can't hit all the KPIs, but hitting the volume we'd expect to.
Thank you.
Behind you. Behind. Thanks. Thanks, Ben Barron 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?
Yeah, and they're not all in the U.K. If you take Mentor 2, for example, we buy the platforms, and then there's a progressive sort of handover. 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?
There is just a lot of, you know, and there is similar in the U.K., but there is a kind of the whole build and I do not 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. I think what people are looking at now is a kind of build and operate so that you have skin, you have operate skin in the game for doing the build properly. That is the sort of direction of travel.
Okay, and also with regard to your, so the two specific ones, obviously with Rosyth.
Oh, David mentioned those, so you better talk about the Rosyth expansions.
The actual CapEx projects that you have mentioned for Rosyth. Yes. Yeah, can you give any more?
Yeah, so obviously we've got a pipeline of shipbuild activities that we talked about in the capital markets day. We'll need extra capacity. We are looking at a new build hall for that. We want to ramp up the missile production volume. Missile tubes. Sorry, missiles. That's what we want to ramp up. We will be looking to invest in that as well. This is all stuff to enable greater scale growth and productivity.
Ashley, you can't say anything on sort of decision points or when you pull the trigger on those.
I mean, it's those two. 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. We will just have to keep you posted on that. The missile tubes, obviously, we will do in tandem with the customer. You know, we're talking the next few months, certainly within the next 12.
Because we built the last build hall so recently, we have, you know, what can cause a delay in a build hall, things like the condition of the ground. You know, 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. It is, although it'll be a big thing, relatively quick. We can align it quite closely to the order intake maturing.
Thanks. 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. 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? I guess the question sort of rolls in, you know, can you maintain those growth rates?
Yeah, we've got pretty good visibility. I mean, I always look at the revenue under contract for forecasting. We generally have very good visibility of stuff that isn't under contract yet. You can't necessarily be absolutely sure of timing, but you've got a pretty good idea. I start with what's under contract. In terms of visibility in nuclear, it's good. You know, 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. You know, it can't keep going at 14%. It is the high-performing business, and it will continue to be for the near term at least.
Thanks. Thank you. It's 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 what, 5% of the group?
Yeah.
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?
That was a teaching on Cavendish, which is the nuclear consulting business. It excluded, we made reference to, but the numbers excluded build opportunities for building elements of SMRs and AMRs. Can I give an update? I think the risk is on the upside. How about that? Is that enough? Do you want to?
Yeah, look, I mean, I do not think we can, we said we would double the business by 2030, just to be precise. I do not think we are going to change that right now. Everything we have seen in the market is encouraging. There are some potentially big things there, but I think we have to just wait a little bit longer to see 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, to say the least. What is, when you talked about the business doubling, I thought it was civil nuclear in its entirety. Just how big is the build-up? 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, 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. 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 are, we're talking about new civil nuclear production would probably become bigger than the consulting, the engineering consulting business of Cavendish. That's a huge if, just to give you a scale thing.
Sorry, and that's for one of the SMRs, is it?
No, this is AMRs. This is just Hartlepool. Yeah.
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 it either at the moment. There's a huge if. Who else could do the build? It kind of partly depends whether the U.K. government decides 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 of government might be the case, then there could be, there are places outside the U.K. you could build them. There is not that much U.K. competition.
Thank you.
Hi, 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've talked about kind of M&A. Do you think that you could do both of those and still, you know, reload the buyback at the end of this year?
Yeah, 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. We know what return the buyback gives shareholders. Therefore, our job as management is to find alternatives to recommend to the board, which we believe provides superior returns to the buyback. If we do not find them, then the buyback becomes a likely option. I think it is hard to say, can you do both? It depends how many superior options we come up with. I think that is our, I think I am looking at Ruth and she is nodding. It is our job as management to come up with superior options to buyback. That is our job.
Okay, thank you.
In one minute's time, this will be the longest half-year presentation I have done in 14 years. I just thought I would let you know that.
I will drag the question out there. Go on then.
Record breaker, 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. Yeah, yeah, it was down. It wasn't flat, it was down.
Okay, thank you. 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 two very big AWE capital projects as part of the Fissile Material Campus?
Yeah, those are still evolving. I think all of our debates with AWE about what our role should be are very positive. Yeah, very, very positive. They've ultimately got to decide how to chunk up those two 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. The question is then, how do they chunk it up underneath? 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.
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?
Oh, gosh. Go on. No, that's an impossible question and very unfair way to finish. I'm never going to talk to you again. Phew. Great, 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.