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With those growing tensions between Europe and Russia, Poland calling Russian drones in its airspace and act of aggression. Europe's defense industry is gathering here in London for a major event. Anticipated military spending has seen defense company shared prices surge across Europe, including for Italy's Leonardo. We are joined by chair and CEO of It's a UK subsidiary Leonardo UK. Clive Higgins, Good morning, Clive, Nice to see you.
Great, great to be with you. Good morning.
Now listen the tensions that we are seeing globally mounting military tensions not just between Poland and Russia, but also in the Middle East. In terms of that backdrop, how much more of a dangerous world do you think this is? As we know that Europe is trying to unleash more military spending.
I think what we've seen yesterday and this morning demonstrates to populations that there is increasing tension, there's increasing instability, and that medium to and view around significant investment in defense is probably very well understood. Consequently, I think what you've seen in Poland over the not too distant pass is a significant investment in their own capabilities, looking to partner with the US but also the UK, and later on this month I expect there to be a reset
of the UK Polish bilateral on security in defense. We've already seen very strong relationships building with some of their capability requirements. So all of that is leading to where we see ourselves today in the UK publishing the Defense Industrial Strategy and in the week sets out that level of ambition that the UK has not only to partner but also to ensure that we've got those sovereign capabilities back in the UK.
How quickly do you think the UK defense spending is really going to be rolled out? There's talk of trying to boost jobs regionally in the UK, the Industry Association talking about the possibility of fifty thousand new jobs being created. How quickly really are those contracts on the mod coming for your business?
I think it's worth just understanding the phasing of activities that this government set out is they came into power which was very much prevised around a complete reset, defense transformation, defense reform, but also then setting out that strategic ambition.
So we've seen the Strategic Defense Review and of course we had the comprehensive spending Review, which was trying to align the fiscal challenges with that need to invest more in defense, which hasn't really seen much investment over many
decades in the UK. Very early on this week we had the Defense Industrial Strategy was on the back of the other eight sector strategies, the key ones for this government, looking at advanced manufacturing, looking at the financial sector, and now we're moving towards the Defense Investment Plan, which we're led to understand will come later this month, which will then set out that funding strategy for all of those key
programs going forward. So it's always the in year challenges are key though there's I think an overheated program overall, and some tough decisions will need to be made by the officials and government around what capabilities. But the demand signals clear, and also the stated intent is clear. So increases by twenty twenty seven and then three percent in the next parliament. But the reality is if you want to keep the resilience in the supply chain, we need
to see some of that coming through now. So we need to see money flowing through the system into the primes, into the SMEs to allow us to employ those people keep that supply chain going and ensure that we're delivering against those requirements that are evidently needed from our opening. Part of the conversation around those increased tensions.
And I'm sure that's a conversation you've been having with government as well. How are they responding to that because it's a very clear demand from the industry.
Absolutely, and you've seen a reshuffle in the UK government over the weekend. There's been some small changes in the Defense team. All of them are very well versed on the requirements to get those contracts coming through and allow industries like ours, our business is like ours, to take that long term strategic view around investment in job, skills, capability, all the things that are needed, and they're very aware of the need to do that at pace.
How many more jobs do you think that are going to be created here in the UK for Leonardo UK, Let's say over the next twelve months versus five years, Because that's the issue, isn't it. It's about speed. I mean we had the ten billion pound deal between the UK and Norway for shipbuilding twenty six frigates, which has gone to be a systems I mean that could see a significant revival in terms of industrial capacity, shipbuilding capacity in particular in Britain.
Yeah, I think two elements to that. Clearly, absolutely fantastic news around the frigate contract with Norway. There's another element to come on the back of those figures. They will need some anti submarine warfare capability. Leonardo provides a very good rotary wing platform in the Merlin, the AW one and one, which can absolutely fulfill that requirement. And we
already deliver search and rescue capability into Norway. So we need to work in lockstep with government to ensure that we deliver more and that export agenda because that is one element of delivering those sovereign capabilities for the UK, as we mentioned at the Start partnership with whether that be Norway or Poland or other countries such as Italy, absolutely critical and we're seeing that on the Global Combtair program as well. In terms of our trajectory of needing
to hire a new staff. We've got nine hundred graduates and apprentices on our programs today, significant number ten percent of our working population, and as we see that investment in program such as the Global Combat Air Program that is driving requirements of four hundred five hundred new heads per annum. Now we have to offset that by in our other areas of the business, in our cybersecurity business and our rotary business. Actually we need that demand signal
of contracts coming through. So whilst one line of business, one division's doing well, that sometimes is offset by some challenges and uncertainty in the contract from other areas. So I do see growth in somewhereas but I'm cautious in others.
The last time that we spoke a few months ago, which does sort of feel like a long time, as we see the build up in military tensions globally really kind of ramp up. You were concerned about being able to get the right sorts of skills in the UK and also being able to speak to those apprentices and those young people that actually there was a real reluctance to engage with the defense sector. Has there been a real shift in that, you know, actually talking to schools
and universities about getting that skill set there? Has that changed?
So I think two elements. We really do welcome the additional funding that's coming through in terms of defense cities in technical places. We've also got Destination Defense, which is a ambitious program sponsored by our ADSR Sector Council and institutional partners around attracting people into defense. I think the reality on the ground is universe. Cities and academia are still challenged by that volume of anti defense sentiment that's
out there. And if you'll got any time today to come across to the Defense Security Equipment Show, you'll see a significant protest outside supporting Palestine Action Group and those things. And I don't have a problem with that kind of peaceful protest. People have the right to do that, but of course that's part of the system now, and if more and more youngsters and people don't want to take up opportunities in defense, that's really going to impact our resilience.
And we do need to see more action on some of that ESG agenda which has stopped SMEs accessing bank accounts, accessing finance, to ensure that we recognize defense is a force for good in society and protecting the values that we all hold.
Dear, when does issues around that talent and training pipeline actually effect have a concrete effect on your ability to expand.
Well, it absolutely does, because if we can attract the skills, the capability, the talent into the business at the time we do it. That delays programs. It's as simple as that. There's a correlation between having enough of the right skills to deliver the output we need.
In terms of what is different for Leonardo UK now versus January the beginning of the year. How much more business are you getting from the British government in terms of concrete orders now what has actually changed?
So we're seeing a pipeline, we're seeing the demand signal. We've now got to work on the execution of those requirements into actual contracts. I would say if you come into the export market in over fifty percent of our UK revenues is now export, so we're two point six two point seven billion revenue in the UK. We are seeing clarity of that demand signal contracts going through from the US and from European partners as well. And this
plays to that point around Europe. The Safe Fund coming forward, the eight hundred billion has talked about absolutely need to be at the center of that and that's where I do welcome the government's work earlier in the year in May when we did the European reset. We've now got to do the detail behind that, which are the government's working on to ensure that UK companies and that's Leonardo back into Europe as well. From the UK position as well as our headquarters in Rome can partner with those
European companies. The Polish arrangements can be really critical going forward to ensure that we're delivering our capabilities into export. So for me, the two come in lockstep. I'm sorry, I'm just wondering.
Under safe program, what sort of potential do you see for funding from there.
I think most of the funding six hundred and fifty billion is going to come from nation states. There's one hundred and fifty billion within the EU institutions itself. So that's about having a bilateral with a particular nation and then working together on whichever capability. So it might be misr defense, it could be more frigid programs, it could
be land systems. So I think what we do with the Joint Expeditionary Force with countries such as Norway and Scandinavia, what we're doing with Poland on missile and air defense and frigates all very important.
A last thought on waste there, it has been real concern about the processes in the Ministry of Defense in the UK, and that a rush to large orders will create more waste than we have seen in the past. What's your view or what's your response on the industry side of that.
I think two elements we've seen through defense reform a significant change coming through the system. The National Armaments Director's Organization is being set up, which is going to look at improving the procurement cycle for kind of very tactical activities off the shelf three months, moving to more complex program reducing the time from sometimes five six years down to one year. That level of ambition is welcomed by everyone and it's starting to now manifest itself with the
changes that are coming through. I then think what you're seeing in Europe is a better approach to partnership and consolidation across the defense sector, and the UK doesn't have much overlap itself, but it now needs to start putting those programs forward and placing those contracts