Type 31 Programme Briefing

Type 31 Programme briefing Friday 9th October 2020 John Howie Chief Executive, Marine Good afternoon, and welcome to the Babcock Type 31 programme briefing. My name is John Howie. I’m Chief Executive of Babcock’s Marine sector. The purpose of today is to give you an update on our progress with the Type 31 frigate programme since we’re almost a year into the contract. Ideally, we would have been welcoming you to our Rosyth site this afternoon. However, the current situation with Covid-19 means that we’re all having to do things a bit differently at the moment, so rather than postpone we decided to try something new and meet you virtually. So, thanks for your attendance in these alternative circumstances. I should just emphasise at the start this is an operational update, so there will be no new financial information disclosed. As a reminder, we are on a closed period, so we are not able to talk about current trading in the business. If you do have any investment-related questions, Simon McLaughlin and Sam McGregor are on the call to step in if we need them. So, hopefully you can see the slide pack. I’ll pass by slide 2, which has just got the standard disclaimer. You’ll be pleased to know, unlike a radio ad, I won’t read it out really fast, and I’ll move on to slide 3, which is the agenda. So, let me tell you a bit about the flow for the next hour. I’m going to run through a short high-level overview to give you a flavour of where we are currently with the programme. Then we have some really interesting video input from the business leads who are actually running the programme to give you an operational perspective, as well as a word from our customer. After that, we’ll open the session up to question and answer, and we’ll give you the chance to ask any questions that you may have. As I said, it should be about an hour in total. Moving forward to slide 4, most of you will be aware of what Babcock does, and be familiar with our role. So, just a brief word on that and where Type 31 fits into our business. As you can see here, we are really proud of the work we do that helps save lives, supports national defence, and protects our communities. In doing this, we deliver bespoke, quite complex engineering services, and we do that for customers in the UK and, increasingly, around the world, with a focus on helping to improve capability, reliability, and availability of their most critical assets within our four sectors of marine, land, aviation, and nuclear. Of course, we underpin all of that with a deep understanding of technology integration, some quite unique infrastructure, and some complex specialist training. Moving on to slide 5, we are the MoD’s second-biggest supplier in the UK. We provide long-term programme support across all of the armed forces, and it’s right at the heart of the business we are. Many of the things that we do are unique, and they are absolutely critical to our customers’ operations, and that gives us good long-term certainty, as does the fact that we have visibility of their 30-year procurement and support programme, and the 10-year equipment plan that sits behind that, so we’ve got really good long-term visibility, both in workload and in likely funding. That allows us to maximise opportunities and drive value for money solutions for UK taxpayers. Of course, increasingly these days we have a growing international footprint, and it’s both growing in size and growing in importance for us as a business, and technology and innovation increasingly underpins everything that we do. Moving on to slide 6, I’ll just talk about the marine sector. The next couple of slides are really an overview of the Marine business. Three main pillars. Firstly, supporting the Royal Navy in the UK and wherever they operate, and that’s the foundation for our business. We’re focused on building our international footprint. We’ve got positions in Canada, Australia, and New Zealand that are right at the heart of that, and we’re growing a position in Oman, and we’ve now opened a facility in South Korea which is a growing market for us, both in defence and in energy and marine markets. In a technology sense, for those who might have been at DSEI last year, if any of you were able to visit that, you may have seen our iSupport technology, and the work we’re doing on digital twins, data analytics, predictive modelling of warship systems and structural analysis have got the potential to completely transform the way we deliver through-life support, building higher barriers to entry, and sustaining the sort of margins that our shareholders have come to expect from us. Moving on to slide 7, the Marine business has got a really strong UK base with about 7000 employees across the UK and internationally. This slide doesn’t include our UK nuclear submarine business in Clyde, Bristol, and Devonport, which employs essentially about the same number of people again, so there’s real strength and depth in this business. Rosyth, for Marine, is our manufacturing centre. Our gas handling business is based out of there, but that’s where the Type 31 programme is centred, and it’s our place for advanced modular manufacturing. We’ve got a number of RN training sites, so although we operate the Clyde submarine base operations through our Nuclear business, in Marine we provide submarine escape and rescue training, as well as operator and maintainer training for the Astute- class submarines. Our equipment business is headquartered out of Bristol, providing weapons handling and launch systems for submarines, as well as payload handling systems for surface warships like Type 26, and then on the south coast we have the rest of our naval training business and our warship support business based out of Devonport, as well as our work supporting the Royal Navy’s principal weapons systems such as Phalanx and the large-calibre guns. You can see there, internationally our footprint is mainly Canada, Australia, and New Zealand, but with a growing presence in Oman and Korea, as we said. So, moving on to page 8, let’s now talk about the Type 31 specifically, which is the purpose of the briefing. Slide 9, just to give you a bit of background on the programme. Many of you will be aware that we won this contract after a really robust competitive tendering process, stiff competition, and at the end of that, Babcock’s Team 31 and our Arrowhead 140 solution were down- selected by the UK MoD to build five Type 31 frigates, and that happened in September last year. We signed the contract in November, 1 Type 31 Programme briefing transcript Babcock International Group PLC and that contract requires us to deliver five general-purpose frigates at an average unit price of £250 million per ship, with all five ships being delivered by 2028. Crucially, Type 31 is seen by government and by Babcock as a pathfinder programme for the delivery of a new shipbuilding model which we think will help invigorate and sustain the UK maritime enterprise, and give the MoD a different way of procuring less-complex warships. The programme is based around a core of UK-focused ship design and build, and that aligns quite closely to the government’s prosperity agenda, and we do think it’s got significant export potential. We’re the prime contractor and the programme leads. We have Thales as our main partner, they’re the combat system provider and integrator, but we also have other major suppliers like NTU, BAE Systems, MAN, Renk, L3,Tyco and Raytheon, and others. A bit about the team. Team 31 is made up of Babcock, Thales, OMT, who are the original developers of the platform design we’re using, our own Fraser Nash, and BMT, and together that is our highly accomplished team that comes from across defence and commercial ship design, and has got the combined experience and capabilities needed to deliver a programme of this complexity. The two blue boxes at the bottom of page 9 tell you what the Royal Navy are looking for in this platform. They’re looking, essentially, for a ship that is both capable and adaptable. Critically, it has to be affordable. Defence budgets, like all other government budgets, are always tight, and they wanted something that had the capability to be exported, and we’ll come back to that later. I won’t dwell on the box on the right, but that’s the operational requirements they’re after. This, essentially, is a general-purpose frigate. Its role is to take part in counter-drug operations, maritime security, and convoy support in the Gulf. So, it’s a generally-purpose ship. It’s not a specific anti- submarine warfare or air warfare ship. Moving on to slide 10. So, where are we in progress terms? Well, the good news is that we are in line with our contract schedule, and that’s despite the issues we’ve had with Covid-19. The whole country, the whole world, has been impacted by the pandemic. We have been able to sustain our contract schedule, and that’s huge testament to the teams that are involved in this, and how quickly they adapted to the situation.

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