James Fisher and Sons plc (6FJ.F) Earnings Call Transcript & Summary

Good afternoon, and welcome to the James Fisher and Sons plc investor presentation. Throughout this recorded presentation, investors will be in listen only mode. [Operator Instructions] The company may not be in a position to answer every question received in the meeting itself; however, the company can view the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to CEO, Jean Vernet. Over to you, sir.

Good morning, everyone. Thank you for joining our 2025 interim results earnings call. I am joined by our Chief Financial Officer, Karen Hayzen-Smith. And we'll start by walking through our business highlights for the six months ended June 30, 2025. Karen will provide an overview of our financial results at group and division level, and I will conclude by giving an update on our turnaround progress and how we are positioning the group for the future. This will then be followed by our outlook before we turn back to Q&A. So let's start with the highlights. We have delivered a solid first half performance. I am encouraged by the trading with our turnaround progressing as planned. We are committed to following our principles of focus, simplify and deliver with improved synergies being achieved through the One James Fisher model. We have a clear plan in place to achieve our vision while we are building our resilience to adjust course if it becomes necessary in a world of growing uncertainties. Our path to 10% underlying operating profit margin will be delivered through executing on supply chain integration, self-help, turning around underperforming businesses in our portfolio and scaling JFD. We are making progress across all these priorities. Conditions in our key end markets have been largely supportive through the first half of 2025 despite growing macroeconomic uncertainties. This, alongside our focus on business improvement, enabled us to deliver a solid financial performance with steady revenue and encouraging operating profit levels after adjusting for the impact of disposals. We also have seen an improvement in underlying return on capital employed, the key metrics for our group. Covenant leverage at the half year was 1.6x, slightly above our target range of 1x to 1.5x. This reflects 1H investments in key energy and defense subsegments where we see opportunity for growth. The first stages of our turnaround have helped us rebuild the fundamentals of our business, resulting in a strengthened balance sheet and a simplified portfolio. We are a leaner, more coherent company with a stronger culture of accountability and performance across the business. While we continue our turnaround, we have a number of exciting accelerators we discussed at the last year-end that are positioning the group for growth. These have driven the defense order book up 45% year-on-year to GBP 350 million. I will cover on this in more details later. We are James Fisher. We presented this snapshot on our activities at our year-end results in March. And let me quickly go through our portfolio. Across the three division verticals, we solve our customers' complex challenges in the blue economy in a unique, innovative and agile way. The Energy division helps our customers to meet growing energy demand globally more efficiently, safely and sustainably as they progress through their energy transition road map. The Defense division supports and rescues lives underwater, thanks to our global leadership in submarine rescue stealth mobility solutions for special forces and rebreathers for combat divers. We deploy and serve our customers wherever they need us in the world promoting availability and interoperability across partner nations. Maritime transport ensures on-time delivery of critical energy products through coastal shipping in selected geographies, but also enables ship-to-ship transfer of oil and gas third-party cargoes globally. We have the highest reputation for safety and quality, and this explains why we have many customer relationships expanding over decades. I will now hand over to Karen, who will walk us through the financial results. Over to you, Karen.

Thank you, Jean, and good morning, everyone. I'm pleased that we have been able to make progress in the first half of the year and to deliver a solid set of results. The business has stabilized from the disposals of RMSpumptools and Martek last year, and we have managed to reduce costs as appropriate given the drop in revenue whilst also new capabilities and investing CapEx and in new innovation to position the group for growth. I will start today with the headlines. Disposals in '24 have had an impact on the financial competitors. And therefore, it is more appropriate if we consider the results adjusted for these and illustrate movements on a like-for-like basis. Revenue was steady across the group when compared to the H1 '24 period with an operating profit up 14.4%, resulting in a margin of 5.8%. Net debt was GBP 72 million on a covenant basis to give a net debt-to-EBITDA ratio of 1.6x at June '25. This is slightly above our target range but reflects investments in growth made in the first half. Lastly, return on capital employed also increased slightly to 5.1%, a 20 basis point uplift. The next slide shows the movements in revenue over the period. The overall decline in revenue relates to the disposals that we made in the second half of '24. Excluding these, though, revenue was up but this was more than offset by the impact of FX. Overall, there was good revenue growth in Energy Services, which continued to have a strong performance in Well Severance and also in Renewables through the bubble curtain product offerings. Managing transport tank ships had a solid performance, but Fendercare was down as a result of low LNG market despite an increasing demand in Brazil. Moving on to operating profit. We saw an increase in profit to GBP 11.1 million and a net increase in margin contribution by GBP 2.2 million as a result of improving underperforming businesses and cost reductions. The H1 period in '24 included a GBP 3 million one-off gain on the sale of Life of Field assets which offset a GBP 3 million loss on the Decommissioning business. This business has now turned to profitability, which represents a GBP 3 million uplift on the prior period. We've also made cost savings across the group, such as reduced insurance premiums, order, legal fees and savings associated with restructuring of businesses and functions to consolidate and reduce duplication. However, we have used part of these savings to invest in areas required for growth such as customer excellence, including strengthening sales teams, together with technology and innovation. Therefore, overall, we have made around a GBP 5.2 million improvement on '24. The overall net result is a margin improvement to 5.8%. And there are, of course, more opportunities to reduce our cost base as we continue to simplify the group whilst we build capabilities required to position for scale. The next slide shows the margin improvement that we have made on a like-for-like basis over the last few years. We have been focused on turning around businesses and becoming more efficient to provide a platform for growth and achieve our 10% margin target. The margin dropped following the disposals, but is increasing in the period. And as outlined previously, there are steps we will take to increase margins further, which Jean will talk about in more detail shortly. If we now turn to look across the divisions. Overall, Energy had a solid first half with revenue slightly down. However, if revenue is adjusted for the impact of the legacy Mozambique port project, which will not repeat and was completed in the period, revenue would have actually been up 6.9%. This contract had around GBP 7 million higher revenue in H1 '24 than in '25. Energy Services had a good performance throughout the period with continuing demand for compressors and Well Severance. We have experienced a delay in some projects in Africa, moving to '26, but otherwise, markets have been robust. In Renewables, there was improved revenue from offshore wind construction activities, which uses our bubble curtain technology, and we have managed to turn around the decommissioning business, which is now profitable with an increasing pipeline of opportunities. On a like-for-like basis, operating profit was up just under 17% as a result of the stronger performance in the restructured subsea and decommissioning business with the margin up 180 basis points to 11.3%. We continue to see demand for all activities across both oil and gas and renewables and across the existing markets of the Middle East and Asia. The U.S. offshore wind market housing projects paused and resumed as they are reviewed by U.S. administration, but this is not expected to impact revenue materially in '25. Moving on to Defense. Revenue increased year-on-year by 3% to GBP 37.6 million, driven by solid performances across the majority of the product lines together with an increase in operating profit. submarine rescue was down slightly as a result of the phasing of customer exercise schedules. The H1 outturns do not fully reflect the revenue generation from the orders secured in Q4 '24, and we should start to see progress coming through in the second half as activity under contract build given a higher percentage of secured revenue going into the second half. The order book at June '25 was GBP 315 million, up 45% compared to the prior year. We are investing in development expenditure for innovation and new product development, and we have incurred costs investing into new markets such as the U.S. The defense market continues to be supportive, and we continue to see growth potential in defense across all product lines. Moving on to the maritime transport division. Tankships saw revenue up 5.9% as a result of improved rates and good utilization to GBP 42.8 million. The Cattedown business had a solid period with petroleum and dry cargo volumes remaining consistent through the port. And on a like-for-like basis, Fendercare's revenue was down 10.8% to GBP 25.7 million in the first half. Results for the business though do not fully reflect the improvements made in Fendercare in the first half with a restructured team and our focus on increasing sales and building new customer relationships. Brazil had a good performance, and we have entered operations in Uruguay having a first operation in September. And Fendercare should see an improved second half. I'll now pack up in some other areas of the income statement. The benefit from the debt reduction and refinancing last year can now be seen clearly in the period with finance charges, including lease interest going from GBP 14 million to GBP 8 million. The GBP 8 million comprises of GBP 4.4 million of bank interest expense, GBP 0.5 million of facility fees and around GBP 3 million of lease interest. The tax expense on underlying profits from continuing operations for the period is GBP 4.1 million, with an increase on the prior period coming mainly from increased taxable profits in Brazil. Given that we've not been able to take credit for certain tax losses across the group, the calculated underlying effective tax rate is significantly higher than you would expect. The effective tax rate, though, is still around 29% when companies with tax losses are excluded. If we turn to the statutory reported figures, the majority of the costs here relate to transformation and restructuring of the group, including redundancy costs and certain project costs. There were also be these legal costs related to the finalizing of disposals in previous periods and some other ongoing matters. On to cash flow. Working capital continues to be a focus with DSO days below previous levels, but they have increased slightly to 45 days from 42 days in '24, which was mainly the result of the timing of payments in Africa. CapEx including development expenditure was GBP 19.2 million, and this reflects investment in further compressors to meet continuing demand and expenditure on our new products across the group. Net finance interest paid was GBP 3.7 million with an average interest rate of around 8.5% for the half year, made up of GBP 4.8 million bank interest, offset by around GBP 1 million interest income. Leased interest payments with interest increased in the year as a result of entering into a longer vessel lease and also contracting additional vessels. As outlined at the trading update, net debt increased in the period from 31st of December '24 by GBP 7.2 million, largely reflecting the first half weighting of CapEx and development expenditure together with working capital phasing on certain contracts. I'll now turn to look at our borrowing position. The significant reduction in debt was outlined in detail on our year-end results in March earlier this year. And this slide shows the impact of the drop in debt and interest costs from where we were at last year and emphasizing the progress made. And although net debt has increased in the period, it is as a result of investment for growth. Right-of-use liabilities increased due to new vessel leases in Tankships and in Fendercare's Brazil operation where we sought to secure a vessel given the increased volume of work in the region. Looking forward to the remainder of '25, trading to the end of August has been in line with expectations and guidance for the '25 year is unchanged. Just a few points of technical guidance to finish. CapEx and development expenditure is expected to be at similar levels as previously guided at GBP 30 million to GBP 35 million. We remain focused on affordability payback and meeting our hurdle rates before expenditure is approved. On bank interest, a rate of around 8.5% is expected before any base rate reductions and lease interest in H2 is expected to be similar to H1, assuming a similar vessel portfolio and terms. And on tax, we are continuing to guide to a tax rate of around 29% in respect of tax payable entities. But as outlined earlier, the tax rate could be impacted by not recognizing tax credit on losses. Therefore, just wrapping up on the financial update. The first half delivered a solid set of results. This included turning around the decommissioning business to profitability, and we continue to assess those other businesses not performing to our hurdle rates. We have reduced costs, allowing us to increase margins and strengthen in areas such as commercial excellence and product innovation, and we'll continue to do so. And we have also been investing for growth but in a measured way to maintain debt levels. I'll now hand back to Jean to take us through the rest of the presentation.

Thank you, Karen. Now let's look at the progress on our turnaround. The last two years, we are focused on fixing and stabilizing the businesses, and we achieved a lot. Everyone contributed to driving and executing on this agenda through incredibly hard work. And I would like to take this opportunity to recognize our employees for the grit and resilience I'm immensely grateful for their efforts. We fixed the financial foundations of the business and are gradually improving our UOP margin and ROCE, while we have reset our debt leverage down to more normal levels. We have made good progress to define, refine and establish our core model. We remain committed to delivering on the remaining priorities of the turnaround, building on what we have completed so far in prior years while kicking off initiatives that position the group for growth. These are enabled by creating a culture where our people can thrive harnessing innovation and technology and bringing new products to market across the globe, expanding our reach and market presence. Let's discuss the progress on these priorities we shared with you during our full year results. Exceptional safety remains our #1 priority, and it is central to our business model. This is measured through a reduction in total recordable case frequencies, which is a standard measure of safety. And while the numbers do not yet reflect the change of culture so far, when I look at where we are after three years of efforts, I can see a deep positive shift across the enterprise. Customer excellence places our customers at the center of the business. We are implementing a commercial framework of the highest standard consistently across all our divisions. We are progressing against these profitability targets underpinned by revenue growth. On people, we continue to execute on our 5-year strategy to attract, retain and invest in our talent and expertise. We gauge progress through our engagement score. And we are on track to deliver our annual employee survey in 4Q. I will delve deeper into some of our people strategy shortly. In new product development, we are driving technology and innovation through a pipeline of unique products and solutions. This is monitored through the market introduction of a number of products every year and are measured by revenue vitality. We are progressing with discipline, but a lot of work remains to be done, and we will communicate vitality levels at the year-end. In strong supply chain, we are building on progress we started in 2024. We are continuing to build and integrate a stronger supply chain, which is measured through our cost savings and is a key contributor to gross margin and ROCE improvements. We are on track to achieve our 2025 targets and with further potential areas identified. I will now walk through the bridge to achieving our 10% UOP margin, a key measure of our turnaround. We have four tactical levers in achieving our 10% OP margin, each equally balanced as far as their contribution. The slide shows how we are tracking progress starting with business performance. Every component of our portfolio must achieve the returns above our hurdle rates. We have seen good performances in Energy Services and Maritime Transport Tankships. Our efforts on decommissioning are paying off. While we continue to focus at improving other parts of the portfolio, such as IRM, James Fisher Renewable and Fendercare. We also see additional opportunities to improve performance across the board. In 2024, we also launched a self-help program to calibrate and reshape our support functions, providing better support to the division as they scale, driving productivity that will lead to higher profit fall through. We are seeing positive progress aligned to our geographic growth plans. Number three, as we move to defense, revenue has been subscale, and whilst the first half of this year has seen an improvement in revenue, we still expect to achieve a lot more. As Karen mentioned earlier, we have booked some early successes for JFD and our order book continues to grow. This step-up in revenue will result in a healthy fall-through to operating margin. The unprecedented commitment for larger defense spending around the world is attracting sharper competition, but our focus is on regaining our leadership in this dynamic environment. Finally, we started a 3-year supply chain transformation journey to integrate and strengthen the function. We are making good progress; becoming a leaner, fitter practice, that can strategically support our business as it positions for growth. Now we will not intend to stop our ascent once we get to 10% UOP margin, but we must first switch that first milestone. As part of our transformation journey, we are now positioning the company for growth. We are doing this in three ways: first, aligning closely to our strategic markets for energy and defense, while maritime transport provide predictable cash flows. Second, focusing on developing our people to leverage our innovative and global culture of service as a key differentiator. And third, accelerating the introduction of new products to markets where we can drive the value to our customers, supporting the megatrends of security, autonomy and electrification around the world. Now let's spend a few minutes on each one of these. When it's about aligning to strategic market; within energy, in the first half, we have extended our decommissioning offering into offshore wind initially with the development of the world's first monopile removal system in partnership with a major developer. In Norway, we are contributing to the country's decarbonization ambitions, investing and electrifying the rig through our Well Severance fleet. We made a good progress on key contract wins in renewable and decommissioning while maintaining our market-leading position for bubble curtains in the U.S. and in Asia. We also established a new base of operation in Guyana. Now in defense, we have invested in new product development across tactical diving vehicles, submarine capabilities and our next-generation stealth multi-role rebreather. We also have won long-term contracts in defense diving and submarine solution across the U.K., the U.S. and Asia. This includes a large contract award with submarine platforms. An important win and a large contract awards with the U.K. MOD. In the U.S., we were awarded a foreign comparative testing contract for our Carrier seal tactical diving vehicle and we secured an important rebreather order for combat diving as part of the 5-year replacement program. We also have sealed a strategic collaboration agreement with Saab for the Swedish and international markets. Geographically, we opened two new bases in Australia and entered into a U.S. special security agreement anticipated to complete in the second half. Now in maritime transport, we have continued with our fleet replacement construction with four vessels due over 2026 and 2027. We started embedding new product development with the first market introduction for Fendercare due for launch in the second half of this year. We also secured a memorandum of understanding with the U.K. MOD to provide support in times of needs. Last year, we pioneered the world's first ammonia STS transfer, which we repeated in the first half in Holland. We also made -- sorry, we have also acquired two new vessels cementing our commitment to the Caribbean coastal shipping markets. Geographically, we opened a new base in Uruguay to underpin our expansion in Latin America for Fendercare. I'm also pleased that we have made progress on our One James Fisher geographic expansion, including the launch of our Japanese entity in the first quarter of this year, acting as a support to all three division developments in that country. I'll move to the next slide to outline how we are investing in our people to enable that growth. Today, we employ around 2,000 people globally across 25 countries in most major operating regions. We differentiate as trusted adviser to critical customers with deep expertise working in complex and hazardous environments. This is demonstrated through credibility, superior service and our ability to innovate. We continue to invest in our strategy to attract and retain talent. Our recently appointed CHRO is doing a fantastic job at building the foundations of our people strategy. By embedding robust HR and talent management frameworks, we are equipping the team at every level with tools, support and opportunities to perform at the best. We are launching our one James Fisher leadership framework that will see nearly 400 current and future leaders complete this 2-year program. These initiatives contribute to building a strong pipeline of talent who will execute our strategy, we are a service technology company at heart, and our people are the driving force of our business. Now moving on to our technology and innovation. James Fisher is naturally innovative, that's image to us, but our past approach was inconsistent, and we were slow to commercialize new products. Following the appointment of our Chief Technology Officer in early 2024, we have developed and embedded a new product development approach that is being deployed across the entire company. This discipline follows a strict process that enables us to translate our customer needs into innovative solutions that solve their most critical issues. By levering partnerships with customers, academia and supply chain, we can deliver an agile innovation pipeline. And I'm happy to report that the progress made on that front are ahead of my expectations. In 2025, as I touched on earlier, we have maintained a sharp focus on new product development that will support our growth ambition across the three divisions. Initial launches are expected across all divisions by the end of the year. So in conclusion, we delivered a solid first half financial performance in 1H '25, and we continue to progress our turnaround. Our focus remains on delivering our priorities and positioning the group for growth. Innovation forms a key part of our growth plans. And we made great strides in the first half with new product development with encouraging engagement from our customers. We will continue to target investments in these growth areas where we have the greatest opportunity to differentiate ourselves and accelerate our offering to customers, mostly within energy and defense verticals. We are now a leaner, more agile group with a strengthened balance sheet and a simplified portfolio. We are well placed to achieve efficiencies and synergies with a more coherent enterprise. This enables us to consider a broader range of investment opportunities. The market was largely supportive in the first half. And looking ahead, we anticipate that some growing macroeconomic uncertainty may affect oil and gas in the second half of the year. We remain cautious but do anticipate the market will return from 2026 onwards. For now, the second half started with trading to date in line with management expectations, reflecting our second half weighting seasonality with a continued focus on cost discipline, continued self-help and driving our strategic priorities, our outlook for the year remains unchanged.

[Operator Instructions] We have received a number of questions, both pre-submitted and throughout today's live presentation. And I'll start the Q&A session off with a presubmitted question here, which reads as follows: How big is the decommissioning opportunities in renewables?

So first of all, thank you for your time and interest. The opportunity in the renewable is going to be substantial because those wind farm have a 20-year lifespan more or less. And after 20 years, they've got to be replaced. As a proxy between now and 2030, there's going to be about 34 gigawatt power coming out of warranty. So this is not yet decommissioning stage, but it kind of announces the order of magnitude of capacity that will have to be recycled. And my rule of thumb is a gigawatt is about 100 piles. So that gives you an idea of the magnitude of the market. Now I think right now, our bulls-eye is on the oil and gas decommissioning market. In itself, it's kind of the spot we play in, is massive compared to our current size, and it will be the priority, but it's very important for us to know that the same technology, the same crews, the same teams can pivot and do offshore wind as well.

We have another question here. Can you provide a bit more color on the new product development launches and the opportunities you're seeing as a result?

Right. So we -- in terms of directionally, we published a couple of years ago that we wanted our vitality, i.e., our revenue ratio coming from technology introducing to market of less than five years to reach 20% and we are not sure than that today, right? So this in practice means that we're going to start launching a handful of products this year. The plan subsequently from past experience would be to reach over the next couple of years a cadence of about up to 10 products a year, so that in the midterm, we would reach the 20% mark by 2027. And then go beyond. When we compare what we do with some of our peers and some of the best-in-class oilfield companies, their new technology revenue is much higher than that, right? It's in 30%, 40%. Now why is it important for us to obsess about this is, first, it's a way for us to be different to be ahead of competition and not to compete like-for-like but also because typically, those technologies are tailored to addressing some specific issues or challenges that we're solving, and we can do value pricing on them. So it's both credit for the revenue, but also credit for the margin. So we'll communicate a little more over this -- by the year end about the product we will have introduced this year. I'd rather wait for this introduction to have come -- I mean the one we communicated is the next generation rebreather for the combat divers, the military divers, the miners, which we already started communicating but there are a handful of other technology revenue to market.

We have another question around the long-term growth and the question asks, what's the long-term growth ambition of the business?

Right. So in terms of sequence, over the past three years, we've really focused on getting the company to a level of profitability that where growth doesn't destroy value. It has been quite a lot of work by trading out the value-destroying businesses, but also by fixing those business that have potential to be quite profitable and grow through profit. So the reason we have a 15% return on capital employed target is because it's roughly in the range of what our average cost of capital is. And if the growth -- if the profitability, the ROCE is not above those targets then why are we growing? We are not creating value through growth, right? So that has really been the focus over the past three years. From the last second half -- last year second half, we started to pivot into fleshing out what are those accelerators we can have on top of the baseline growth which can accelerate the top line growth, knowing that these opportunities have superior profit. So what we mentioned last year is our markets, broad line between energy and defense are, what I would call, growth businesses. So there is a baseline where we want to grow with the market. But then on top of that, we want to be able to accelerate top of that growth through the specific niche -- growth niche that we are focusing on where actually a lot of those new products are playing. So we have not communicated yet our long-term top line growth. This is something that we are mindful of doing probably as we shift to our growth period in maybe by the year end.

Next question here. How we be maximizing shareholder value going forwards?

Well, to rebound on the prior question, I think for us to maximize shareholder value first, we had to fix our dysfunction and our gaps. As an example of that, we have trained those businesses that we have many losing with no hope to ever, it would become profitable about our cost of capital. Second, it has been to fix the bad actor in our portfolio who has potential and decommissioning is one of them, going from ever losing business to -- for this year, first time becoming profitable. And so essentially to lift up all the businesses we have above the profitability, a level threshold of 10% and a 15% ROCE. That for me is our priority for creating value in the short term. Thereafter, once we have established those that we can repeat those business at those levels, then we can think about growth and growth, organic growth in itself has a tremendous value potential in my opinion. We create value because what we do is different. We are very, very close to our customer base who typically are repeat customers and they understand the value that we bring. And we are also having growth potential around the spread that we want to reach around global expansion. A lot of the growth -- strategic growth that is ahead of us, most of it is outside Europe, right? So the combination of differentiation, pricing premium profitability and risk mitigation across an expansion through different markets should bring shareholder value, mostly organically. Anything you want to add, Karen?

No, I think that's fine. And obviously, in terms of the company shareholder value, we haven't been paying that dividend, but we'll be looking to effectively being [indiscernible] at some point in the future, of that number..

The next question here, James Fisher is a business that's successfully navigated over 175 years of change. What is a single nonfinancial quality, be it a core skill, a value or a cultural trait that you believe has been most critical to the company's survival and success over this time? And how are you ensuring that this quality is not just preserved but is actively championed in the next generation of leadership?

Very well. Very fundamental question. We are actually closer to 180 years than 175 years, but -- when I go through the history of the company, which I did before I joined and deep dive into our current state and what make us common within the company, there is this paranoia this survival ability. The history of James Fisher has been a history of crisis of solving problems and rebounding, Sir James Fisher was the last channel CEO of the family back, up to the 1980s, always said the next crisis is around the corner. And if we make us stronger, and I think there's a lot of that in what's unique about James Fisher. How do we solve those crisis, is a combination of grit and resilience, as I said in the prepared remarks, but also thinking out of the box. We have such a deep knowledge of the marine environment and what our customers are facing as challenges that we come really with some different ideas. And that is typically what pulls us out of difficult situation is how innovative we are. And I can say with -- we are that any of the activities we are in today at some point from our history, we invented whether it's a submarine rescue, whether it's saturation diving, whether it's -- you go all across, even coastal shipping, we were the very early one in 1847 to do this, right? Ship-to-ship transfer, the way we do it, we invented it or the company we bought invented it. So there is just that unique trait that we are different and I guess the thing I'd like to change in the company is that we are not just satisfied in survival by surviving. We are not just satisfied by being originals. We need to be able to scale what we do. So directionally, that means maybe do less of those things and the one we concentrate on, bring them up to the next quantum. That I think is a little bit the thing we would like to change now going forward.

Changing gears slightly, how do you prioritize investment in energy and defense? And what's the expected returns?

So when we changed the culture starting three years ago and we accelerated that when Karen came on board. We established some pretty plain vanilla criteria for investment of capital and the investment of our resources into tendering and bidding. And just by being disciplined around that, a lot of profusion and flurry of ideas just fell through the wayside, right? So far, I cannot remember that we had a good project, a good opportunities, we couldn't invest in because we are at capital constraint. Now some of us would say, "Oh, yes, we didn't invest in this vessel or that vessel, yes, because we realize that vessel is not for us, right, except for the tankers, which have a very committed long-term business path. But generally speaking, the natural discipline has allowed us to be selective. And I just cannot remember when we had to let go a good opportunity because we couldn't finance it. Now going forward, as with our growth ambition, we might have to do some choices, right? And if we think that we have a lot of good projects, we might have to think about how to fund them corporate-wise, but it's not a problem today. And the beauty about energy and defense is there is a lot of crossover between those two verticals. So when we invest in a project for defense, we immediately see applications for energy and vice versa. It's amazing how those two domains are converging, within the marine environment. So I'm trying to think a case where we had to arbitrage between the two, but none comes to mind.

No. And we have different CapEx profiles at the moment. In defense, we're spending a lot in new products. It may be fair to say that defense didn't have sufficient spending in new products going back a while, as Jean has said. But at the moment, we're spending just over GBP 30 million of CapEx, and that is sufficient for where we are at the moment. As Jean said, obviously, if we look forward to kind of strategy position, it may be that we need and to generate more cash to invest in the opportunities that are available across the different markets and [indiscernible] that time in terms of funding.

I think when I reflect over the past three years, we were over levered. We are more normal now, but this overleverage forced the discipline of challenging investment opportunities, right? And I think we'll always keep that sharp eye around not drinking our [indiscernible] when it comes to investment. So we'll see, we'll adjust, we'll adapt.

Next question here. Can you also share more about the specific actions you're taking to streamline the supply chain and what impact this might have on margins in the near term?

Yes. So we started a supply chain integration exercise from pretty much nowhere, nothing. So starting with the basics, we put some discipline -- I mean we're still underway, by the way. We are not on -- it's a 3- to 5-year program, right? But we put some control points around purchasing. We shifted the responsibility of selection of suppliers from various functions who are pretty much doing whatever they wanted to supply chain, in particular, when it comes to technology and engineering, right? We don't want the engineers to select the suppliers. We want the engineers to bring up a spec sheet and then work with supply chain to select and assess, select and qualify suppliers. So just those basics putting in place is setting us not just in terms of savings, but also in terms of effectiveness. So we brought in some talent. We put in place some processes. It's not rocket science. We're not inventing anything. We're just applying the basics. But then we are going into a spot now where we are thinking around reshaping, remapping our supply chain -- value chains so that we actually source -- we will source more into those places where it makes sense from a local content viewpoint, from an overall economic viewpoint, for example, supplying more out of India is an example or some places in the Americas. And that kind of follow a global logic that will support our expansion globally. So there's a lot more to do there. But I think the quick wins and the size of the prize is substantial. You want to add something on this, Karen?

Yes, I think there's a lot of activity going on across the group in the supply chain space right through from the items you would expect on category management, but a lot of work now going into when we win a contract and how we manage that supply chain base and the procurement right through to critical suppliers and how we manage that. So we had a very low level of maturity on the supply chain and procurement side, and we're starting to see that matured as we go forward, but it's an essential component of growth actually as we start to win orders to be successful and to deliver the margins that we want to deliver.

Yes. I think there's another dimension which would become more and more importantly for these business that develop either assets that we use in our services or product that we sell to our customers, these are typically a very long lifespan, multi-decades. And when we do NPD, new product development, we think about the life cycle of the product or the assets. So we think through from the get-go, the obsolescence management of some of those components. And indirectly, that's going to save us massive amount of money, dysfunction because until now, it was not managed, right? So everybody was pulled into those crisis. So indirectly, it's going to, again, not having the technical team of the NPD drop everything to solve an obsolescence problem, but have the proper people in place from the get-go to manage obsolescence along the way. So there's so many ways where supply chain is going to be quite transformative for us.

We have a question on the currency exchange rate here. The question asked, what is the most beneficial scenario for the business in terms of currency exchange rates? E.g. strong or, weak U.S. dollar or other significant currency impacts?

Yes. It is probably easier to talk about the sort of the mix of our currency because I don't think we are necessarily have a preference. So given that we are in the Energy division and actually also shipping, as you would expect, those businesses transact a lot in dollars, but it's more on the transactional side. So we'll transact in dollars as the customer requests and then we will be hedging that position going forward. In terms of actually translation of dollars for your question which a bit strong or weak U.S. dollars, we don't actually have a lot of entities that are in U.S. dollars, that would be in sterling and the local currency in Brazil. So we don't have a lot of translation issues on the U.S. dollar. But we manage the kind of cash aspect of it through hedging across the group as soon as we have a large contract with a customer, we'll hedge that appropriately.

There has been a big jump in defense orders to GBP 315 million. What sort of operating margin are you expecting on these orders? And when will they start to have a material impact on the company's growth rate?

Yes, there's a few areas worth pointing out. So within defense before getting to the order book, we -- you will have seen that our margins are lower than you might expect. And that doesn't mean that the contracts that we have at the moment are low margin. It's because we are probably not at the scale that we would like to be at in defense at the moment. Really, we don't have the volume that we want at the moment. And we are also investing through both CapEx, but from a margin perspective in OpEx, whether that's strengthening engineering or commercial excellence or product development support. So we actually are carrying more cost in defense relative to the volume that's been generated at the moment. And we could -- as that volume comes through, we should be able to get an uplift in margin over time without actually significantly increasing the cost base. So we'll get a step-up from a margin perspective. On the order book side, from a kind of short-term perspective, we increased our order book in the second half of last year. And we have started work on the OEM side of that. So it was delivering -- one of the large contracts was delivering tactical diving vehicles for a customer and that should start -- we should start to see the benefit of that coming through the second half of the year. So some of that order book will be converted into revenue in the second half. With regard to the order book makeup, we have an order book that comprises of an element of OEM, which maybe would be manufacturing things and that would be span over two or three years. And then we have our services where we would maybe tend to look across that five to seven year where we can see that, that service revenue is going to come through and we would put that into the order book.

Another question here. The share price remains low, when will the business consider a share buyback?

Right. So in terms of share -- taking order of use of capital because of where we find ourselves in -- our priority is to fix the company. I think we are a long way into this now. And we are pivoting into using our cash to invest in good projects. We still have a significant amount to pay for our debt costs, which we keep working on. So that is really what's top of mind for us, right? And then when we have free cash flow that we can redistribute, we'll do this as soon as we can. But right now, we are facing a combination of continuing to invest to fix the business, but also a growing set of business opportunities that require capital.

Well, we have a couple more questions. I know we are approaching the hour, so maybe perhaps the time for just two more. How does a 15% vitality target compare with that peer group companies?

Yes, we -- so over time, this will increase. And I would say it's hard for us to compare ourselves to the peer group because we're competing with defense and energy and then maritime transport. Those three segments have very, very different technology profiles. So -- but generally speaking, we want to compare ourselves with -- we are both a technology and a service company. So when you look at the best-in-class companies which are doing both service and technology and are really differentiated on that basis, those level of vitality are higher than that.

And the final question for today. Could you please elaborate on the scale of the opportunity to reduce the group's cost basis? And what realistic time frame we can expect this to be achieved?

So as Jean outlined in the presentation, there's a number of levers to try and hit our 10% margin target over the period of the turnaround. And I think we've picked up quite a few of them, the supply chain, the defense rebound, and we've been dealing with underperforming businesses like decommission as we highlighted in the presentation. So that leaves the sort of self-help cost base area that we have been working on quite a bit over the last 18 months. So we're starting to see some of the drop through for that. And that covers a lot of areas, as you would expect. We have been looking at really simplifying the group. We have a complex structure. So we have been trying to simplify that. We've been restructuring our businesses to delayer and that's sort of people cost saving. And actually, we have incurred some redundancy costs associated with that as we have streamlined some of our functions. And things like audit fees, insurance fees, travel budgets, et cetera. So we have started to see cost reduce in those areas. And also, we've been investing in systems to try and improve sort of the manual processes we have and also reduce the cost base accordingly. We have been making savings, but we've also been using some of that to invest actually in trying to get a bit of a platform for growth so we can scale going forward. But when we look at trying to achieve our 10% target, then on the cost side, I expect that to be linear over that turnaround period. So we should start to see the margin savings coming through over the next 12 to 18 months.

Well, Jean and Karen, thank you very much for answering those questions. We have run over the hour, and I'm sure the company will endeavor to answer any questions that haven't been answered in this session. But just perhaps before redirecting investors for their feedback, Jean, could I just ask you for a few closing comments?

Yes. Thank you. So I'd like you to take away the fact that -- as a company, we are becoming leaner and more agile. We have strengthened the balance sheet to look more like a normal company -- a normal levered company, while we have simplified our organization and portfolio. Our second half of the year has started with trading in line with our expectation, which means that our FY '25 expectation also remain unchanged. And in the background, we have a clear pathway to our medium-term financial target of 10% profit, operating profit and 15% return on capital. So thank you very much for your time and looking forward to meet again.

That's great. Well, thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order to that the management team can better understand your views and expectations. On behalf of the management team of James Fisher & Sons plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.