James Fisher and Sons plc (FSJ) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the James Fisher and Sons plc Full Year Results Investor Presentation. [Operator Instructions] Before we begin, we would just like to submit the following poll. And if you'd give that your kind attention. I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from James Fisher and Sons plc. Jean, good afternoon, sir.

Thank you very much, and good afternoon, everyone. Thank you for joining our call today to introduce you to James Fisher. I am pleased to be joined by Karen, our CFO. And I will start by providing some business highlights and quickly going through an overview of our portfolio. Karen will then provide financial -- 2024 financial results review, and passing back to me for a strategic update on our business turnaround and how we are positioning ourselves for the future, at which point, we will open for Q&A. Please note the disclaimer on Slide 2, which oversee all what we're going to communicate to you today. So if you go to the next slide, in terms of the business highlights, James Fisher is a company which was built on a great heritage, innovation and expertise at sea. For about 180 years, the company has been adapting to various phases, thrived in times of change and disruption, leading always with solution that provide answers for complex and hazard -- in complex and hazardous environment. In 2023, we launched a business turnaround program. I had just joined the company in September '22. And the turnaround is about moving James Fisher from a company managed as a portfolio of individual businesses into a one cohesive unit under what we call the One James Fisher organization, and delivering improved operational and financial performance. The turnaround was guided by 3 themes: focus, simplify and deliver. And 2 years on, we have made quite a lot of progress. The turnaround was -- sorry, the first phase of focus and simplify is nearly complete, regrouping around one core as a technology service company operating within the blue economy, which means the Oceans. Our One James Fisher model is here to build greater efficiency and synergies across all our activities. We have simplified the portfolio, which is better aligned to our customer base. And for this, we have reorganized the company around 3 customer verticals: energy, defense and maritime transport, and I'll provide a little bit of more flavor of this on the next slide. Our full leadership team is now in place. Everyone is accountable, cohesive and unified as one team to drive execution. We invested several businesses in 2024 at very good value for our shareholders. And this was necessary to be able to delever the debt of the group and strengthen our financial foundations. This also allowed us to refinance our debt with less onerous facilities last September 2024. I believe that we are now on stronger footings to move in 2025 to the next phase of our turnaround, which is about positioning ourselves for growth aligned to the markets and subsegments we serve. We will, of course, continue to improve on safety, talent, innovation and productivity through a focus on execution and a spirit of a culture of accountability. So I'll spend now a few minutes on our business portfolio as it stands today and as it will drive the company going forward. Our purpose at James Fisher is to solve customer challenges in the blue economy, which is below and above the oceans and waterways. Our activities serve 3 market verticals: energy, defense -- energy, defense and maritime transport with quite a lot of convergence going on between energy and defense. The Energy division helps our customers to meet the growing global energy demand, which is secular, in a way which is more efficient, safer and more sustainable for them as they progress through their own energy transition road map. For example, our oil and gas services make our customers' operations safer, less carbon intensive. On the other hand, in offshore wind renewable, we make them more sustainable, for example, in the way we protect the sea life during construction. We also lower the operating costs through deploying smart monitoring and repair services for high-voltage cables and blades. In Defense, the division support and save lives under water -- human life under water, thanks to our global leadership in how we rescue submarines, but also through defense diving life support system, breathing equipment as well as mobility solution, i.e., fast crafts that deploy special operation forces in a stealth manner in denied environments. We deploy and serve our defense customers wherever they need us in the world, also promoting interoperability and interchangeability across our partner nations platforms. Maritime Transport ensures the on-time delivery of critical products in the energy sector through coastal shippings in selected geographies. But we also, within that division, enables ship-to-ship transfer of oil and gas third-party cargoes globally. We have for this division, the highest reputation for safety and quality. And this explains why we have a long-term blue-chip customer base with some relationship extending over several decades. In fact, that last comment applies across the 3 divisions in James Fisher, but the shipping part is our historical activities over more than a century. We will continue to simplify our portfolio going forward in the spirit of continuously reviewing increased fit and cohesion between the parts of the portfolio, but also in the spirit of driving performance. At the same time, we will focus within that portfolio, especially in our activities with the most promise to scale profitably. And I will cover this in a little bit more detail later. But now I'll hand over to you, Karen, so we can review the financial results.

Thank you, Jean, and good afternoon, everyone. I'm pleased that at James Fisher, we've been able to end the '24-year in a much stronger position and with a positive set of results. Overall, we continue to deliver on our turnaround priorities that we've set, including proceeds from the sale of businesses and assets, which provided funds to pay down our debt and strengthen our balance sheet. And also we refinanced our facilities on better terms in September and continued our focus on cash management, increasing profitability and improving margins. So let me start with some of the headlines that you can see on this slide. Given the disposals, these numbers reflect that we'll be looking at the businesses ignoring those disposals. So we're considering the results adjusted for the impact of these so we can illustrate growth on a like-for-like basis. Revenue was up 8.6%, which was driven by a stronger-than-expected second half performance, mainly in the Energy division and operating profit was up 31% to GBP 22 million, excluding disposals with a margin of 5.4%. And although the margin was 90 basis points, it has reduced on a restated basis given that RMSpumptools, the business that we had disposed of was a higher margin business. In the unadjusted position, revenue was actually down 11.8% overall and operating profit was flat. Net debt was GBP 6 million on a covenant basis to give a net debt-to-EBITDA ratio of 1.4 at the 31st of December, and that was within our target range. And lastly, return on capital employed also saw an increase to 8.2%, up 160 basis points. If we now turn and look at revenue in a bit more detail through the bridge, revenue declined year-on-year by GBP 68 million, and this is due to the impact of business closures, Subtech Europe business and activities related to the sale of the Swordfish vessel, which took place in '23. Revenue was also impacted by other disposals in '24, the RMSpumptools disposals I've just mentioned from July last year and Maritime Marine. So if we exclude these, you can see as the high light that revenue increased by 8.6%. On the continuing businesses, there was an GBP 18 million increase, and this was explained by Energy Services having good revenue growth. Our Tankships business had a solid year, and our defense business also had an uplift in revenue. This is offset by a decline in ship-to-ship transfers within our Fendercare product line due to a quieter year with a lack of LNG transfers, and we also experienced some timing delays in the sale of our fender products, which moved from '24 into '25. So if I move now on to operating profit. Although as outlined in the previous slide, revenue declined in the Subtech Europe and Swordfish, there was actually minimal impact from an operating profit level as Subtech Europe had actually been loss-making and the vessel activities were at lower margins. There was also a profit impact from the volume changes that I highlighted on the previous slide with the Energy division up, offset by the Maritime Transport being down. And this resulted in overall underlying operating profit is broadly flat. However, excluding disposals and closures, profit was up 31% to GBP 22 million. And I would just highlight a point that we issued a trading update in February '25, where we announced that we were expecting underlying operating profit for '24 to be ahead of market expectations. So we increased that from GBP 24.5 million to GBP 29 million. Given the various movements in the year, this slide provides a profile of the continuing businesses following the simplification of the group and illustrates growth on a like-for-like basis. We achieved a CAGR of 6%, which is if we look back over the last few years. And as we look forward, we do recognize that there are businesses that are not quite performing at their full potential or desired hurdle rates. We have made progress in '24 on those, and we'll continue to assess or turn around these businesses as we go forward. Following the disposals, as you can see, the profit margin is 5.4% for '24. Therefore, we are focused on increasing this by reducing our overall cost base, and we have made some savings in '24, and we will continue to do so throughout '25 with a program now in place to accelerate our efforts. These efficiencies are through a number of areas. We have a self-help program that's taking costs out in areas such as duplication and a supply chain initiative, productivity initiatives and driving businesses to perform at our hurdle rates, and Jean will discuss these in a bit more detail later. We'll be balancing these actions, though with a desire to actually build capabilities within the businesses to ensure that we have a platform to grow and scale those businesses going forward. I will now look at some of the divisions in a bit more detail, starting with the Energy division. Energy was restructured organizationally in the year into Energy Services, renewables and inspection repair and maintenance. It had previously been a collection of different businesses, which have now come under the Energy division and into the categories I've just mentioned. Overall, the Energy division has a good year with revenue up almost 18% before disposals and energy services benefit from projects continuing beyond the normal seasonal time frames in the Well services business in the year. There was strong activity in our bubble curtain, which crosses both Energy Services and renewables in our existing markets, the Middle East and Africa and newer markets in Taiwan and in the U.S. And renewables now accounts for 33% of the bubble curtain revenue, which is up from 20% in '23. We are well positioned to adjust our resources to take account of macro and political changes across both Energy Services and our renewable product lines. Our inspection, repair and maintenance business delivered a 60% increase in revenue, rising from GBP 40 million to just under GBP 63 million, and this growth was primarily driven by strong performance in Africa on our major infrastructure project in Mozambique, which is nearing completion. Operating profit, excluding disposals, excluding disposals, increased to the GBP 18 million, as I said, mainly from the volume uplift and benefiting from the nonrecurring items outlined earlier. The Energy division is focused on achieving synergies and efficiencies to improve profitability further across its product line. So if I move on to the Defense division, revenue increased year-on-year to GBP 80 million, driven by a good performance in submarine rescue, Defense diving and submarine platforms, together with a small increase in operating profit to just under GBP 2 million. The lower operating profit also reflects the continued investments that we're making in capabilities to scale the business and develop new products. So the outcomes of the year actually don't fully reflect the progress or the potential in defense. And I'm pleased to say that we saw that the order book had improvement in the last quarter of '24 and finished the year with an order book of GBP 306 million, up 37% on the prior year. This includes orders for submarine rescue services and the largest order we received within that intake was for our tactical diving vehicles. And while some procurement processes are still slower than we would have hoped, we do anticipate growth in defense across all our product lines. And the division has actually been focusing on strengthening its service offerings in Australia and establishing a presence in the U.S. And lastly, on to Maritime Transport. The division had a solid performance in its tankships business, as you can see, with revenue up 5.8%. We had less vessels actually in the year, but still managed to retain the revenue at GBP 80 million. And the spot market, which accounts for about 20% of our activities held up well, and we had good fleet utilization at 89% in the year. The Cattedown business, which is park tankships also had a very strong year with increased activity through the port. So then if I look at Fendercare, if I strip out the Martek sale from the figures, Fendercare was down 10.6% from GBP 70 million to GBP 62 million, which was obviously a disappointing performance. The reason for that is the -- one of the reasons for that is the LNG market has not recovered in '25, which is a profitable part of the business. And although there's good market potential in LNG going forward, the conditions were just not right in the year to drive some of those LNG transfers. Brazil continued to perform well. and the higher vessel costs impacted profitability in otherwise a very strong market. And in addition, as I mentioned before, '24 was impacted by product orders for tenders slipping into '25. Operating profit overall was down, reflecting the drop from the Martek disposal and the revenue shortfalls as I've just outlined. So if we go to cash flow, I'll just pick out a few points. Working capital, as you can see on the slide, it continues to be well managed, and we saw a net working capital inflow in the year of GBP 4.2 million. And this also was reflected in our day sales outstanding, which dropped from 45 days in the prior year to 42 days. Net interest was GBP 17.4 million with an average interest rate at around 10%, which is GBP 20.4 million of bank interest, offset by GBP 2.8 million of interest income. CapEx, which also includes development expenditure was GBP 31.7 million. And this included further investment in compressors and other equipment to meet continuing demand in our energy services business, deposits on tank ships through our rebuild program, together with new investment in product development in defense. Net disposal proceeds were GBP 106 million related to the business and assets disposed of that we've already discussed. And this gave an overall net debt movement inflow of around GBP 88 million, taking net debt to GBP 56 million. If I continue on with net debt. This slide shows the progress made over the last year in reducing our debt and financing costs. The interest rate has dropped by 150 basis points to around 8.5% as we had planned with significant savings in leases and other banking fees that we were incurring as a result of the older facility. Net debt finished the year at GBP 61 million on a covenant basis, giving a net debt-to-EBITDA ratio of 1.4, and we will seek to maintain debt within our target range, although we are expecting increase in H1 due to the seasonality of the businesses and subcontract phasing. The graph on the right shows interest cover, which was 9.6x at 31st of December, but that calculation includes interest rate swap terminations, which boosted the cover. So I'm expecting interest cover to drop around the region of 5x during the year. In support of our growing defense business, we agreed a GBP 12.5 million general export facility in this month, and that was split GBP 7 million to fund working capital and GBP 5.5 million to allow issuance of bank guarantees. We continue to remain focused on working capital and managing our inventory levels and on debt collection. Therefore, to wrap up the financial update, I would say that we had a decent second half with an overall improved '24 performance. We delivered on an important turnaround actions, deleveraging, strengthening the balance sheet, improving our cash position and simplify the business. Overall, we've stabilized the group in the year to position for growth. But I do recognize that there's more to do to improve our performance and increase margins in the medium term. So I will now hand back to Jean.

Thank you very much, Karen. So if you can go to the next slide. As I mentioned earlier, we are now 2 years in our turnaround journey, which is a 3-year business turnaround horizon. We have focused our portfolio, divesting some noncore business, including the sales competition of our business RMSpumptools and Martek in 2024. The net proceeds of both transactions alongside improved cash management discipline have allowed us to successfully refinance our RCF in September 2024. The new group facilities are contracted with 4 major banks, significantly reduce administrative costs and provide increased flexibility to support the business. Also to support the simplification and delivery, we have a full executive team now to implement our One James Fisher operating model, and we have launched a self-help program. We are also encouraged by the additional progress we have made on our company priorities, which are underpinning our business turnaround strategy. This includes, number one, priority exceptional safety alongside investment in the pipeline of our peoples talent, a stronger supply chain, technology innovation and employee engagement. With some targets achieved in 2024, we have elevated our focus in 2025 towards customer excellence, placing them at the heart of our strategy. If you go to the next slide, when I reflect back over the past 2 years, we have achieved quite a lot. I would like to acknowledge our colleagues who have been driving and executing on this agenda through very hard work. We have reset the financial baseline of the business. Karen has already covered this. But over 2 years, our UOP margin has increased by 120 basis points and our ROCE by 290 basis points. We also have downsized our credit facilities and built a healthier balance sheet. The key enabler for our turnaround has been a disciplined and rational investment decision culture. As Karen mentioned, we have invested about GBP 30 million in CapEx projects delivering superior returns well above our hurdle rates objective, while ensuring the continued modernization of our tank ships fleet. I'm encouraged also by the steps we have taken to improve the financial discipline and the compliance across all our businesses, which is essential to manage our risks and deliver our results more effectively. Overall, the hard work has been paying off, and we enter now in the next phase of our turnaround with clear priorities. That said, we are conscious that the recovery is still early stage, and the 2025 priorities will cement and solidify our recovery path. If you go to the next slide, no -- actually, that's the right slide. Exceptional safety remains our #1 priority, embedding a culture that protects our people from harm under any circumstances. This will continue to be measured through a reduction in total recordable case frequencies or TRCF, which is a valid measurement of our safety. Customer excellence place our customers at the center of the business, building on last year initiative we have -- we are implementing a commercial framework and a culture of the highest standard consistently across all the business units, a culture that enables us to bring novel solution that solves our customers' biggest challenges. This will be measured against progress on our UOP and working targets. Pipeline of talent, so people. We will continue to execute on the 5-year people strategy to attract, retain and invest in our talents and expertise. As a service technology company, our colleagues are the key agents of our success, and we will gauge progress through our employee engagement score. New product development, we will drive innovation and a pipeline of unique solution that makes our customers more competitive. And this will be measured by our ability to introduce new differentiated products to market and to grow revenue vitality. Strong supply chain, building on the early progress from last year, we will continue to drive supply chain integration, building stronger strategic partnerships, driving greater efficiency and supporting our global reach. And this will be measured through our cost savings, and this is a key contributor to gross margin uplift and ROCE improvements. As you can see, these priorities continue some of the long-term programs we started earlier in 2024, but they are complemented with new priorities that position us for growth. I will now walk you through our bridge to achieving our 10% underlying operating performance, a key measure of our turnaround. So we are acting on 4 levers to step up our UOP margin to 10%, each one contributing roughly in equal part towards our target. First is that we will continue to improve our business performance within the portfolio where every business unit must achieve returns above our hurdle rates, and we have seen good progress made in energy. We will also see some additional opportunities to improve performance across the board. Second, in 2024, we have launched a self-help program. The goal is to calibrate and to reshape our support functions and to design an organization that better supports the business units so that when we scale, support functions drive productivity, leading to higher profit flow-through. Third, defense revenue has been subscale over the past several years, but we have seen some good green shoots of recovery, driving up the order pipeline at the end of 2024. And this is set against strong market tailwinds, which I'll go back over soon. A lot more needs to be achieved in defense and the leadership team is driving this very hard. The division currently has the resources and capabilities to drive this inflection in revenue. And on that basis, a step-up in revenue will result in healthy flow-through down to operating margins. And then the fourth lever is the supply chain 3-year programs we started last year to integrate the function, harness an expert leaner and fit our practice that can strategically support our business globally. This will be measured by shorter on-time delivery and will result in a lower cost base that will make us more competitive. Of course, we do not intend to stop our Ascent once we get to the 10% underlying operating profit. We have within the company, the potential to reach higher grounds by increasing differentiation through technology and thanks to strong market tailwinds. Now let me turn around to talk about the market verticals now and the trends that are relevant to us and how we are positioning the company for growth.So there are 5 megatrends affecting our market verticals, which are particularly relevant to energy and defense. The first one is that as energy demand will continue to rise robustly across the world, global warming will become worse and decarbonization will continue to drive the demand for safe, efficient and sustainable sources of energy. Second, and this is coupled with the first one, there is a need for energy security and reliable supply. Thirdly, the geopolitical landscape is rapidly changing, reverting to a world governed by spheres of influence. And government spend is about to step up significantly across our home markets, while emerging global threats are driving record level of spending in defense, including in marine warfare. The next trend is digitization, automation and AI will accelerate, transforming how business and broader society operates, and it will provide an exciting option for us to bring smarter products, greater efficiencies and faster decision-making. Finally, we are seeing an increase in localization policies moving to favor a buy and spend local approach. And recently, the U.S. has been leading the way through higher tariffs. So within this fast-changing world, our end market prospects are very exciting, but we must remain vigilant to keep our 3 divisions aligned to these trends while continuously adapting to change. If you go to the next slide, positioning for growth. We are positioning the company for growth acting upon 3 levers, which will lead to strategic growth. The first one are to be aligned to strategic markets. Our capabilities are really targeted and tailored to growth area of future spending across the global energy and defense areas. while maritime transport must build higher barrier to entries, so we can preserve a predictable and attractive cash flow generation. Second lever, people and capabilities. We leverage our human capital through expertise, through a spirit of service and some unique capabilities, which we can deploy to customers around the world. We know how to operate safely in complex and hazardous environment, and we have done so for 178 years. Innovation and technology is the third lever. We partner with customers to provide new innovative products that bring a competitive edge across a broad range of ecosystems. Our evolving product lines is tailored to growing markets and megatrends, including security, autonomy and electrification. And I'll spend a few minutes on each one of those levers first on the markets. Yes, that slide. So within our current business portfolio, we have identified 7 subsegments across energy and defense. Each one of them have the potential to accelerate our growth and our size because they are heavily aligned to the macro trends I just went through. We have a proven track record for some of these subsegments, which gives me the comfort and demonstrate that we -- when we focus, we can deliver fast and scalable operation. For example, bubbles which is a technology which protects the marine environment, and I'll explain this a little bit more shortly, but also submarine rescue and tactical diving vehicles, which we invented as products and services and on which we'll continue to innovate to stay ahead of competition. Across those 7 segments on the slide, every one of them differentiate versus competition, and we can see opportunity for sustainable growth against the underlying markets. We have set 4 criteria that will allow us to select and scale these businesses. And you can see that across bubble curtain, well services, pretty much all the defense segments, our experience and our attractive market share put us in an excellent position to embrace the secular inflection points we see in these markets. The case of offshore wind power generation is slightly different. We are talking about here blades of turbines, cable of turbines and operating and maintenance program. This market is still extremely nascent and fragmented, but this presents a huge opportunity for us. I believe that the new technologies, which we are testing and developing at pace to solve the massive challenges of this industry will be a strong driver of our future growth. I will provide more color shortly on bubble curtain and submarine rescue. And of course, there is also maritime transport we are already investing in to replace our current fleet and modernize it so that we can continue to meet long-term demand, but also provide significantly more efficient and sustainable tankers. If you go to the next slide, our people and capabilities lever. When it comes to the second lever, we are a service technology company at heart. We employ nearly 1,900 people globally deployed across 23 countries and touching most operating regions. We differentiate ourselves by being a trusted advisers with deep expertise, working in complex and hazardous environment. This is demonstrated through credibility, superior service and our ability to innovate. Energy is an example, which is perfect for this, where we pivoted our oil and gas expertise into air compression from a market -- from the oil and gas towards the emerging offshore wind market. In defense, we continue to lead the industry through customer intimacy and understanding and the ability of our people to translate our customer need into bespoke product and services is what makes our name. In Maritime Transport, where reliability is paramount, customers trust the reliability of our people because of the safe, professional and diligent care of our seafarers on every voyage every single day. The gauge for measuring our progress on people and capability is our employee engagement score, which is a key measure of employee satisfaction and engagement. If I go to innovation and technology, following the appointment of our new Chief Technology Officer in early 2024, we have developed and now embedded a new product development engine and process to be deployed across -- to be followed across the entire company. This is key to building a continuous pipeline of new products that address the evolving needs, always keeping in mind the reliability, efficiency and sustainability. By leveraging partnership with customers, academia and our supply chain suppliers, we can deliver an agile innovation pipeline. Our technology efforts is guided by our business strategy and can be directed organically or complemented at time through partnerships with smaller entrepreneurial companies to co-develop together early-stage technologies. In 2025, we are making this partnership approach to third-party technology methodical through the launch of a corporate venture capital practice. Technology and innovation will be measured through vitality, our revenue generated by the technology we have invested in. Now if I turn to the -- yes, to this slide, it's an illustration of what all this means, picking up on the Bubble Curtains segment, where we combine expertise, technology and partnerships. With offshore wind set to build an additional 120 gigawatts of capacity by 2023 when we exclude China, the industry was looking for a solution that would reduce environmental noise pollution to protect sea life during pile driving operations. The intense underwater noise can be disruptive and potentially file to marine life. 6 years ago, through a strategic partnership, James Fisher led the way in advanced compressed air solution designs for big Bubble Curtains. Bubble Curtains creates a barrier of rising bubbles from the seabed that absorb and scatter sound waves, significantly minimizing the noise levels. Each is -- each job is customized based on that current weather sees so conditions or even the size of the monopile. This technology is proven to be the most effective method to reducing underwater noise up to 95%. The compressors we designed for use with the services also reduces carbon emission by up to 40% compared to standard compressors. This has been a steep learning curve over the past few years from understanding the market opportunities and positioning ourselves within the customer value chain through to improving operational delivery and efficiency at scale. Over 5 years, we are now winning repeat business and are a global leader in this segment, and I will walk through this time line journey right with the next slide. This time line shows how our agile business model works, pivoting into growing nascent markets and scaling our operations through quick decision-making and engineering expertise. From the stage of an idea in 2018 to the place of scaling operations in 2024, we have constantly listened to the customer pain points, and we have provided an evolving solution that reduces customer costs to deploy through reducing the vessel requirements, resulting in approximately 30% cost saving for our customers while we also drive efficiency. We are proud of this product offering as it is truly sustainable and plays an important role in protecting marine environment. Looking forward, it is easy to move this product globally as it is vessel agnostic, which differentiate us from other competitors. And this, combined with market tailwinds and a growing adoption of sea life protection policies across nations provide us with the confidence that there is further potential across Northeast Asia, Northern Europe and North America, where we are already the market leader. If I turn to another example, which is submarine rescue. But first, moving on defense and on this product, I'd like to let you know about some business statistics. James Fisher is responsible for 4 out of 5 of the world's air deployed or flyaway rescue systems. And we have delivered 5 out of the 6 of the world free swimming rescue vehicles. We have 40 years of expertise in this industry, which we invented, delivering for navies with year-on-year contract renewals. Our customers depend on rescue readiness. The systems and the teams must be ready to deploy at short notice any day of the year. We deliver 90% availability, supported by our locally based but globally deployable teams. This availability is well above most naval vessels and systems. Submarine rescue is one of the areas we have selected to grow the business as the trends show a significant structural growth in demand due to the size of the submarine fleet growth and the need for more interoperable systems between partner nations. We also see an increasing convergence between submarine rescue and deep diving as navies develop new ways of protecting critical underwater infrastructures. We have differentiated ourselves from others as we have looked for ways to continuously improve our services through technology, for example, by enhancing digital communication protocols and tools, but also upgrading our digital monitoring of casualty health to ensure that injured submariners receive proper care as soon as possible. To invest in these growth opportunities, we must be rigorous with our use of funds, and I will now talk about how we achieve this through our capital allocation framework. This is a very important slide for us. The financial discipline we implemented over the past 2 years enabled us to have a much better handle on managing our free cash flows. We also have designed an organization that puts capital allocation at the center of business decisions. This is guided by simplicity and focus, avoiding distractions, which give us more time to spend on the truly promising opportunities. In the capital allocation pecking order, organic investment is top is first. We invest GBP 30 million to GBP 35 million depending on the year on CapEx for opportunities with compelling economics with strong business rationale that support better delivery to customers and minimize the risks we don't control and therefore, enhance our growth potential. We will not discard opportunistic small bolt-on investments, but we will apply harder hurdle rates on these, both regarding business rationale and financial metrics. The second priority in our use of fund is to maintain a conservative leverage structure for our capital. You saw our progress in 2024 to rebalance our debt over equity ratio, and our leverage is now within acceptable range. We will closely monitor to stay within that range and continue to optimize by controlling our cost of debt. And priority #3, ordinary dividends. Although the company is healthier than 3 years ago, we were unable to reinstate a dividend for 2024, but we are committed to doing so once we are confident that we have regained a predictable and repeatable annual return in excess of our investment needs. In conclusion, I'm encouraged by our 2024 performance, ending the year with a stronger financial position and with a better position for growth. We are delivering on our business turnaround strategy. And while much remains to be done, we are moving forward. We have reduced our leverage significantly, which allowed us to refinance the debt under improved terms. And this provides a stable capital structure from which to grow and execute our strategy. We are progressing towards our strategic financial targets of 10% UOP and 15% ROCE through a combination of the improved business unit performance, self-help, a rebound of our defense business and continued supply chain integration. Once we have reached our financial hurdle rates, there is no reason to stop there, supported by the market tailwinds of energy and security, but also driven by innovation. Market conditions remain supportive, but we are mindful of the near-term geopolitical and macroeconomic uncertainties. Our February year-to-date trading for this year 2025 was in line with management expectation, and we remain confident about making further progress this year. We have, as a company, the passion to succeed, and we are committed to achieving these strategic ambitions. Our purpose and mission remains unchanged to harness the blue economy through the provision of safe, innovative solution that solves our customers' problem and challenges. If we look at why to invest in James Fisher on the page, now we covered a lot of this during today's presentation, but I'd like to leave you with 3 key points. The first one is that we operate in strong critical and secularly attractive markets with strong long-term tailwinds. Within these markets, we have multiple segments with high-growth opportunities potential, which are supported by increasing spending across energy and defense. Number two, our people. They are ingenious and experienced at sea, bringing 170 years track record of expertise, capabilities, adaptability on providing reliable service by deploying safe tailored solutions globally to customers in hazardous environment. And thirdly, we bring first-to-market innovation that solve our customers' problem by improving efficiency, reliability and sustainability for our customers. This distinctiveness creates differentiated value that can be monetized. Our turnaround plan -- sorry, our turnaround program is on plan and has already started to translate through our results. Our focus is now to position ourselves for growth. And as we turn the company around and strengthen our balance sheet, the combined ingredients of markets, people and technology will drive improvement in our operational and financial performance and ability to deliver value for our shareholders. So we have now concluded our prepared remarks and strategy update, and we'll turn around to questions. Thank you very much.

[Operator Instructions] Guys, you can see that we have received a number of questions. So perhaps if we dive straight into it. The first question that we have here reads as follows. What is the extent of management ownership? Are you buying or planning to buy more shares?

So employees or management, senior management has a bonus program, which is structured in a way that part of the bonus -- a significant part of our bonus like for Karen and myself is going to go into share purchases. And we'll implement a similar plan now for 2025 going forward for all our executive team.

Perfect. Just turning to the next question. Can you please comment on the lead time between the recent cold and warm water trials of the seal carrier vessel and future orders considering there is an urgent or requirement in the U.S. for this vehicle?

So the -- what I would say here without being too specific, is that our carrier Seal product, which is those James [indiscernible] vessels that can deploy special forces at surface or semi-submerged or underwater in a stealth manner has been tested in all types of waters by 23 different navies over the past several months. It has been tried in life theaters and brought a lot of attention because it really fits a need from special forces community, which is flexible, versatile and to a certain extent, economical way to deploy troops for a variety of missions. What we have seen is that there has been an acceleration of time line of interest to order. And we've seen some of those order intake coming up towards the end of last year and are looking forward to additional orders in the short and medium terms. So it's for us, it's for us, I'm not so concerned about the velocity, the acceleration of customer interest for this product. A lot of our attention is about investing in how can we bring our delivery capabilities from 1Z, 2Z to a semi-industrial scale, right? And that's what we have invested a lot of bandwidth over the past year so that we can rapidly ramp as those orders come in. But the question is right, there is an accelerated need for this product, especially in the biggest forces of the world, which is the U.S.

Perfect. We have a question here, which asks, are you seeing opportunities with the uptick in defense spending? And if so, how significant is this for the business?

So one of the reasons we had this slide with pretty much all the activities of defense into the opportunity for growth is the answer to this is yes. We see opportunities. They are of different nature. I would say the most mature but bigger in scale is the submarine rescue, where we have an incredible uptick in the volume of submarines being built around the world among our customer nations, but also a convergence, standardization across partner nations to have interoperable platforms, whether it's [ OCUS ] whether it's other programs. So what puts us in a unique position is we serve -- I said in the statistic, we serve probably 80% of those platforms today of the friendly nations. And whether it's through a live exercise, exercises we see between those partner navies or individual trials or through our NATO support program, every time you have various navies combining, 80% of the systems are ours, right? And that really opens the eyes of the customer base that there is a lot of merit to come with a comprehensive modular solution, which we can provide. So I see submarine rescue as a huge opportunity for growth for us, and this is already a substantial market for us. But I could say the same thing across prebreathers, which are those equipments to be able to have the combat diverse breathe. The craft that we just talked about earlier, the TDV is more of a disruptive play, a product which is completely new in concept. So the needs are massive, but the growth curve is going to be very different than submarine rescue, which is a much more mature service.

With a strengthened financial position, what are your priorities for capital deployment? Are you considering acquisitions, increased R&D or shareholder returns?

So I mean, as we said in the slide, the priority is organic investments. Some of that is R&D because we -- our success is built on innovation. And we do this in a spirit in a very organized and methodical approach so that, that in itself result directly in shareholder returns. So I don't disconnect shareholder returns versus -- now if you mean by shareholder returns, dividend, I think the slide shows the orders of consideration, right? What was the thing in between there was R&D, what was...

Our debt.

Yes. So that's really the order of the slide. We invest in what we think is going to bring value to the shareholders organically. We make sure we don't overinvest or we don't we maintain the debt profile, so we don't go back in overlevered position because that would be value destructive for the shareholders. And then the idea is that the free cash flow is -- the extra cash flow is going to the shareholders. But as I said in my remarks, we need to ensure that we can have a stable flow of excess cash flow in excess of our investment before we resume the dividends.

Just segueing on to the next question. When you talk about the growth outlook in the Energy and Defense divisions, what sort of average annual revenue growth do you have in mind over the longer term?

Sure. Yes, we haven't given a metric associated with that growth profile yet. Our focus in terms of the metrics that we've given out are more given the stage of the turnaround that we're at and where we've been, our hurdle rates are much more focused on achieving a 10% operating profit margin. And with regard to the investments that we'll make to drive that revenue a 15% ROE target. And Jean outlined earlier in terms of the chart that showed the different subsets of where we see growth, and we have a good degree of confidence on those areas and their ability to drive growth going forward. Anything else you want to add?

I guess the only thing I would add is on top of what you just said, Karen, is we have a reasonable base of organic baseline growth. And the strategy positioning for growth for us means how can we supplement this with a booster of growth based on fundamentals, right? So those 7 subsegments we showed on the slide, the strategic intention is to lift off the top line above and beyond the normal baseline growth.

Perfect. And perhaps one final question here. In light of the German/EU rearmament plans, have you seen any increase in inquiries in the past few weeks?

So we have always been quite close to the various governments in Continental Europe, especially the past 2 or 3 years since the Ukraine invasion. And definitely, the past months has been absolutely momentous in terms of switching the landscape. I would equate this to what we saw in the 1990s when Germany decided to reunify, right? We're talking about the same tectonic economic shifts. And I see that as an incredible opportunity for us. So it's still very, very recent. This lift up of expectations of those programs. But what we -- we are assessing how more intensely we need to be present across all those Continental Europe navies. But we know them well. and we are looking forward to energized refresh on the number of opportunities. I think this is good for us.

Perfect. Thank you. And that concludes the questions there. So Jean, Karen, actually, thank you very much indeed for addressing all of those that came in. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, and just for you to review and to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But Jean, perhaps before really now just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great.

Yes. So thank you very much. So first of all, thank you very much for your interest and for your time. I joined this company about 2.5 years ago with in mind having to do a turnaround. What I've discovered as I deep dive under the hood is actually a company which has much more potential than I expected in terms of how it selects the market it operates in, how unique it is and the ingenuity, the spirit of innovation that we have across the board. So that was a big surprise to me. The second discovery I made is how magnetically passionate all the employees of this company are. There is something about the seas and the ocean that attracts very passionate people. And our people are really attuned to their customers. Most of the time, they come from our customers. So these were 2 wonderful surprises. And what started as a turnaround story quickly transformed in my mind into much more than that. The turnaround becomes just a tactical plan. What is really exciting to me is what we can do with this company to make it a best-performing service technology company. So I'm actually very excited by the road ahead. Thank you very much.

That's great. And Jean, Karen, thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of James Fisher & Sons plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.