Speaker 1: You've seen a lot of positive sentiment over the last months.
Speaker 1: Clearly the backdrop to that is conflict globally, whether that's
Speaker 1: in the Middle East or in Europe for the first
Speaker 1: time in decades of course, So I think society has
Speaker 1: seen a need to respond to some of these threats
Speaker 1: and therefore governments are very attuned to that. We've seen
Speaker 1: a lot of transformation coming through defense in the UK
Speaker 1: in particular, so you're seeing the structures of defense in
Speaker 1: government transforming.
Speaker 2: Now.
Speaker 1: They want more pace, they want more agility, the flow
Speaker 1: of funding has to be improved, and also recognizing that
Speaker 1: post COVID, where we recognize that supply chain resilience was
Speaker 1: a key attribute, we need that in defense as well.
Speaker 1: So I think the ambitions you've seen from the UK
Speaker 1: government with announcements on significant increases of defense spending are
Speaker 1: really positive, but that needs to translate in terms of
Speaker 1: reality on the ground.
Speaker 2: How much does the rest FIC then match the money
Speaker 2: that's actually being committed.
Speaker 1: In your view, I think it will flow, but it
Speaker 1: takes time, as always, because some of those systemic changes
Speaker 1: that I referenced are only starting to now come through
Speaker 1: the system. And I think maybe the incoming labor administration
Speaker 1: was a little bit surprised at what it found when
Speaker 1: it came in. It will be then for them to
Speaker 1: talk about that. But we've needed to increase defense spending
Speaker 1: for some time. I would say the threat vector is increased,
Speaker 1: so that's driven that need to change. So now increasing
Speaker 1: to two point five potentially three percent in the next
Speaker 1: parliament absolutely critical. And I think what's lost sometimes is
Speaker 1: the UK does sustain a nuclear deterrent Many of our
Speaker 1: peers don't do that, so that takes a significant amount
Speaker 1: of defense budget. So when you're looking to recapitalize other programs,
Speaker 1: you've got to be cognizant of a lot of expenditure
Speaker 1: on that nuclear deterrent program.
Speaker 2: Leonardo obviously is involved in it in a number of
Speaker 2: important projects, I mean, including things like GCAP, which is
Speaker 2: the Global Combat Air Program, a joint venture with a
Speaker 2: whole host of other countries and companies. You know, that
Speaker 2: is a long term project. We're thinking sort of twenty
Speaker 2: thirty five for that. In terms of the here and now,
Speaker 2: can you talk to the size and scope of expected
Speaker 2: orders from Leonardo UK from the UK government. When do
Speaker 2: you think those orders are going to come?
Speaker 1: So gcap's a live program now, so we're actively supporting
Speaker 1: the creation of the systems, the processes, the capabilities, and
Speaker 1: I think from a Leonardo perspective, we're really pleased because
Speaker 1: we're the industry lead from an Italian perspective, alongside BA
Speaker 1: Systems and our Japanese partners. But in the UK we're
Speaker 1: driving what's called i SANK, the Integrated Sensors in Non
Speaker 1: Kinetic Effects Element, which is very high skilled jobs across
Speaker 1: the length and breadth of the UK in Edinburgh and Luton,
Speaker 1: so on and so forth. So there's funding already flowing
Speaker 1: through for that program, and over the next period of
Speaker 1: time we'll be setting up the headquarters in the UK
Speaker 1: as well, in bringing together engineers from Japan, Italy and
Speaker 1: in the UK to collaborate there. UK government programs that
Speaker 1: are live today are many. We're doing some work with
Speaker 1: them on the new medium helicopter program at the moment.
Speaker 1: That will be a key one for our helicopter division
Speaker 1: business down in the Southwest, and I think very recently
Speaker 1: we announced that we just responded to the final kind
Speaker 1: of position of the RFI and our best and final
Speaker 1: offer had gone in so hopefully that program will continue
Speaker 1: to progress in line with the mod's stated requirements. But
Speaker 1: of course across the spectrum, whether it's support to Typhoon,
Speaker 1: or whether it's gcap or it's maintaining the existing rotary
Speaker 1: fleet we have in the Southwest, or even the work
Speaker 1: we do in the Cyber Division, all of those programs
Speaker 1: are continuing. And of course as we see more activity,
Speaker 1: particularly support with the typhoon fleet for example, of our
Speaker 1: partners in other organizations, you're seeing an uptick in requirements
Speaker 1: and spare in having that capability back in the UK
Speaker 1: to support them absolutely critical and that's why I'm really
Speaker 1: pleased at some of that investments flowing through in terms
Speaker 1: of jobs and skills. So we're going to take another
Speaker 1: one thousand employees this year alone. Many of those are
Speaker 1: very high skilled jobs, which is what the government wants
Speaker 1: in terms of that growth agenda.
Speaker 2: But is that any different than what you might have
Speaker 2: taken on in terms of workers and young engineers, young
Speaker 2: young employees.
Speaker 1: I would say it's higher because we look to replace
Speaker 1: turnover of course, and because of the sector we're in,
Speaker 1: you have to have security clearance, so that does restrict
Speaker 1: the type of demographic we can go for. Sometimes but
Speaker 1: given that flow through of work in GCAP in particular,
Speaker 1: on top of the continue to support for Typhoon, and
Speaker 1: I would say thanks to the UK government for the
Speaker 1: export support as well, because we're seeing a lot of
Speaker 1: interest in international partners around the typhoon program. That's driving requirements,
Speaker 1: so that means that we've got to get the skills
Speaker 1: on board as quickly as possible. And in the regions
Speaker 1: that we operate in, that's really important because a number
Speaker 1: of our sites are located in areas which have challenging
Speaker 1: social issues, so that investment that we can put into
Speaker 1: that local community really does have a catalytical, catalytic effect
Speaker 1: on what goes on there.
Speaker 2: Okay, perhaps I'll come back to that. Is there some
Speaker 2: frustration though with whether the rhetoric is going to match
Speaker 2: the money and the action currently and the government is
Speaker 2: talking about much more speed and yet Europe is talking
Speaker 2: about huge sums to be invested in European defense spending. Yes,
Speaker 2: they're coming from further back maybe nationally, but actually is
Speaker 2: there some level of frustration that actually things are not
Speaker 2: The rhetoric is there, but the orders and the investment
Speaker 2: is still a long way off.
Speaker 1: I think what will be interesting is we're awaiting a
Speaker 1: number of significant reviews. So we know the Strategic Defense
Speaker 1: Review is coming, We've got the Comprehensive Spending Review coming,
Speaker 1: We've got the Industrial Strategy Defense industrial strategies. So I
Speaker 1: think my plea would be, let's get those through quickly.
Speaker 1: There are bound to be some tough decisions for government
Speaker 1: in terms of spending priorities, whether that be CSR, Comprehensive
Speaker 1: Spending Review, or defense itself. The ambitions there, but of
Speaker 1: course the current funding twenty twenty seven is still a
Speaker 1: few years away. The challenge will be to maintain and
Speaker 1: ensure that we've got those capabilities that we need and
Speaker 1: we're looking to the future quickly. People will talk a
Speaker 1: lot about autonomy and autonomous capabilities coming through. Well, those
Speaker 1: types of technologies need developing, they need funding. We need
Speaker 1: to look at the R and D coming through. So
Speaker 1: Leonardo alone last year invested over five hundred million in
Speaker 1: R and D for example. That's the type of partnership
Speaker 1: and government that Defense can deliver now through the primes
Speaker 1: supporting SME. So how can we ensure that that funding
Speaker 1: flow comes through. You mentioned Europe, and I think it's
Speaker 1: really interesting because from a Leonardo perspective, we're seeing a
Speaker 1: lot of collaboration now across the European domain and also
Speaker 1: slightly outside with Baker in Turkey as well. But recapitalization
Speaker 1: of land capabilities for sure, huge partnerships coming with Ryman
Speaker 1: Tallin in Leonardo around land vehicles. But we're seeing states
Speaker 1: like the German's invest significant amounts in defense and that
Speaker 1: money starting to flow through. I would say, probably quicker
Speaker 1: than we would have expected, but it's now starting to happen.
Speaker 2: The government is insistent on its agenda for economic growth,
Speaker 2: and almost everything that it does is seen through that lens,
Speaker 2: including defense. Is it really possible to see it that
Speaker 2: way or does the priority simply have to be on
Speaker 2: rebuilding the military and defense capabilities and supply chains. You know,
Speaker 2: if you've see everything through a lens of building local jobs,
Speaker 2: that can you can't ride two horses at the same time.
Speaker 1: I think it's always as a balance, for sure. I
Speaker 1: think historically the approach to defense acquisition has been on
Speaker 1: a kind of lowest cost approach, what's going to be
Speaker 1: the least expensive to the taxpayer. I think that approach
Speaker 1: has its merits, but then just takes away from the
Speaker 1: social impact you can have through good defense jobs, and
Speaker 1: we see it across the UK. Now where you've got
Speaker 1: a anchor defense industry, you do see wealth generation, you
Speaker 1: see that interaction with local communities. So we will undoubtedly
Speaker 1: have to look at capabilities that don't exist on shoring
Speaker 1: work with partners internationally, but I think we do have
Speaker 1: to start prioritizing who are those national champions almost in
Speaker 1: particular capability areas, what are the strategic assets we want
Speaker 1: to maintain in the UK And through existing mechanisms we
Speaker 1: have the single Source regulations for example, some great work
Speaker 1: from the team they're working with SMBs, working with Primes
Speaker 1: to ensure that we're flowing defense spending down into supply chains,
Speaker 1: keeping that resilient. So there's a balance. But I think
Speaker 1: this week as we testify, if you if the government
Speaker 1: invests one pound in Leonardo, you get a two pounds
Speaker 1: forty return, that's Oxford Economics data. So what that then
Speaker 1: gives you the ability to export as well, because in
Speaker 1: the UK you generate intellectual property, which means that you
Speaker 1: can then export that to international partners.