Good day, thank you for standing by. Welcome to the BAE Systems Webcast Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I will now like to hand the conference over to your speaker today, Martin Cooper, Investor Relations Director. Please go ahead. Thank you, operator. Hello, everyone. Thank you for joining this BAE Systems presentation at short notice. As just said, I'm Martin Cooper, the investor relations director, and today, also on the call, we have Charles Woodburn, our Chief Executive, Brad Greve, our CFO, and Tom Arseneault, President and CEO of our Inc. business. By way of housekeeping, there's a slide presentation on the website, which we will run through, and the slides will be interactive on the webcast. We will take your questions at the end in the usual manner. I will now hand over to Charles to walk through the presentation. Charles? Thanks, Martin. A very good morning to you all on this significant and exciting day for BAE Systems. I'm delighted to announce the acquisition of Ball Aerospace, a leading space and defense technology company, delivering mission-critical capabilities for its customers. The proposed acquisition presents a really unique opportunity to add a high-quality, technology-focused business with hugely relevant capabilities to further strengthen our world-class multi-domain portfolio. It's rare that a business of this quality, scale, and strategic fit with such strong growth prospects becomes available. We've leveraged our financial strength and momentum to take advantage of this opportunity. Following our successful integration of the two acquisitions coming out of the Raytheon UTC merger, Ball Aerospace has been high on our list of potential opportunities. Like those two businesses, we didn't expect Ball Aerospace to come to market, but our focused approach in recent years regarding M&A activity enables us to once again be opportunistic. Following receipt of regulatory approvals, we strongly believe this will be an excellent addition to our portfolio, enhancing our long-term value creation potential and our market position. Like the previous acquisitions, we see Ball Aerospace as an excellent cultural fit, with capabilities and technologies well-aligned with our strategic priorities. The business has grown significantly in recent years and has strong alignment with the U.S. Intelligence Community, Department of Defense, and the U.S. government's highest technology priorities. It is very well-positioned across military and civil space and high-end subsystems for missiles and munitions. It also has a long and distinguished track record of trusted innovation and development, which makes it well-placed to continue to deliver strong growth. At circa $4.8 billion net of the significant associated tax benefit, which Brad will cover later, this deal is EPS and free cash flow accretive in the first full year after completion. The business is also well-positioned for circa 10% annualized sales growth over the next five years. The strategic and financial rationale are both strong and align with and enhance our value compounding model of top-line growth, margin expansion, and high cash generation. We are making this acquisition from a position of strength and see it making us even stronger in the future. With that, I'll hand over to Tom, who led the extensive due diligence process, to give greater detail on why we are so excited to be acquiring Ball Aerospace. Over to you, Tom. Just 1 moment, please. Is Tom on mute by chance? I believe he is. Tom? Yes, can you hear me? Yes, we can hear you now. Yeah, we do now. Sorry, we do now. All right. Go, go back to the beginning, Tom. Yes, sorry. Thank you, Charles. As you said, it is rare to have an opportunity such as this with a business so complementary to our own and so very well-aligned to our culture. We couldn't be more excited about the prospect of joining forces with this highly respected team. Let me start with the three important trends in the world today that portend significant growth for this business and align well with our strategic direction. First, amongst these trends is the steady and inexorable shift of priority to the space domain, where scores of new satellites will orbit the Earth to protect and defend our freedoms around the world. Second, increasing concerns about the causes and effects of global warming, catastrophic weather events, and the health of our planet writ large, are also steering budgets to space, where future generations of sophisticated scientific instruments and monitoring systems will help us better understand the Earth and our impact on it. Finally, the war in Ukraine and the surprisingly precipitous drawdown in munition inventories around the world has led to higher planning levels for existing and future munitions, creating new demand profiles for those in munitions supply chains. These three trends are driving notable shifts in our customers' budget priorities at home and abroad, and factor squarely into the bright future we see for this business.... The advanced solutions offered by Ball Aerospace hold leading positions in space systems and mission-critical defense technologies across all domains. As I mentioned, we are seeing growing demand for space, C4ISR, missile systems, and other mission-critical capabilities from a broad spectrum of customers. Their long-standing expertise in spacecraft, mission payloads, optical systems, and other defense and civil systems will enhance our efforts to deliver a range of products and differentiating technologies to address these customer requirements. The business has a long and distinguished track record as a trusted partner and pioneering innovator for customers that include the U.S. Intelligence Community, the Department of Defense, other U.S. defense industry peers, as well as independent civil organizations such as NASA and NOAA, or the National Oceanic and Atmospheric Administration. As a result, this proposed acquisition would expand our footprint in space, extend a complementary set of customer relationships in national security, and offer new access to civil space markets. We have found the Ball Aerospace team to be strongly aligned and highly complementary to our BAE Systems mission, "We protect those who protect us." Our mutual cultures of innovation would create a potential combination that we view as beneficial for BAE Systems, Ball Aerospace, and our customers alike. This proposed acquisition represents an exceptional opportunity to strengthen our portfolio with the significant scale and high-end technology capabilities of a $2 billion business. The positive growth outlook for Ball Aerospace will build on its healthy order backlog. The outlook for growth would enhance our BAE Systems Inc. portfolio and advance our ability to address key focus areas identified in the National Defense Strategy and U.S. intelligence strategies. Space continues to be a strategic priority for our customers, and this acquisition would augment our mission-critical offerings to address this priority. As you can see here, Ball Aerospace's products and capabilities span advanced remote sensing, scientific and tactical systems, spacecraft, mission payloads, optical systems, and antennas, supported by a broad set of differentiating technologies and analytic tools. As we've commented here today, this business has been a pioneer in its chosen segments for many decades and brings a robust portfolio of solutions across a broad spectrum of customers in key growth areas with its key technology differentiators. You see here that the business is organized into four divisions: National Defense, Tactical Solutions, Civil Space, and Advanced Technology and Information Solutions. This slide illustrates the breadth of the mission-critical capabilities Ball Aerospace is providing to leading U.S. government and industry customers to help them solve some of their greatest challenges. We believe this proposed acquisition provides compelling value and an exciting future, underpinned by our shared culture that is mission-inspired, results-driven, and values-oriented. The team of more than 5,200 employees are dedicated to making the impossible happen each day. These accomplishments are made possible by some of the qualifications you see here. Over 60% hold U.S. security clearances, and many have advanced degrees. Our mission, "We protect those who protect us," resonates with the Ball Aerospace team, and our shared values will strengthen our capabilities and benefit our companies, customers, and communities alike. We look forward to sustaining their long and historic legacy of providing expanded opportunities for its management and employees as part of our global enterprise in the aerospace, defense, and security industry. Ball Aerospace's core manufacturing and engineering operations are located in the state of Colorado and provide a substantial footprint in this strategically important region for U.S. space activity and talent, which includes the U.S. Space Command headquarters. In addition to its highly skilled employees, Ball Aerospace has state-of-the-art facilities. Over the past 5 years, the company has invested nearly $1.1 billion in its manufacturing facilities and research capabilities. These investments have supported impressive growth in recent years and will fuel further growth in the future. This acquisition is a tremendous opportunity to add complementary capabilities to our already diverse product and service portfolio, and there are also some opportunities for top-line synergies. With complementary adjacencies, Ball Aerospace and our BAE Systems Inc. business would have expanded opportunities to develop and manufacture next-generation solutions to address our customers' evolving requirements. In particular, we believe their world-class products and capabilities would offer further acceleration of our efforts across multiple programs in several of our Electronic Systems sector businesses. The synergistic nature of the combined portfolio would support adjacent areas of growth for both BAE Systems Inc. and Ball Aerospace, and perhaps more importantly, it would add further resilience to BAE Systems Inc.'s existing franchises. As we covered the Ball Aerospace business on the past several slides, we've provided a high-level view of its operations, its people, and its portfolio. We are confident that BAE Systems will be an excellent fit for the business, and we could not be more pleased to have signed our agreement and have the opportunity to work together to secure the necessary approvals to successfully close and combine our companies. I'll end by turning back the clock to BAE Systems' acquisition of the then Lockheed Martin Sanders business in July of 2000. The business that forms the core of our Electronic Systems, or ES, sector today. I was a Sanders employee back then, and now in Ball Aerospace, I see the very elements of what has made ES sustainably successful over time. The unwavering focus on enabling technologies fueled by a culture of innovation, the diverse portfolio, well-aligned and adaptable to customer priorities. The solid reputation for delivering on its commitments, and a very strong affinity to mission that underpins it all. With that, I'll turn it over to Brad to cover some of the financial merits of this acquisition. Brad? Thank you, Tom. In 2020, we framed the three Ps approach to creating value by de-risking the pension, accelerating performance, and dynamically shaping the portfolio. Because of the proactive measures we've taken to deliver on this strategy, the pension and balance sheet have never been stronger. We've delivered consecutive years of strong performance through operational excellence, and we're very excited to build upon the great acquisitions we made in 2020 by adding more quality to the portfolio with the proposed purchase of Ball Aerospace. As you've seen, Ball Aerospace growth and leadership will be accretive to the group's top line. The business will provide access to new dimensions of growth that require sophisticated capabilities to Intelligence Community and DoD budgets, particularly in space, C4ISR, and missile components and munitions as the U.S. builds deeper stockpiles. The gross consideration of $5.55 billion nets down to an economic acquisition price of $4.8 billion after the $750 million of tax effects. You may remember that we used the same Section 338 election mechanism in the acquisition of the former Raytheon and Collins businesses in 2020, so we have experience with the tax savings, and we know that the value is real and demonstrable. On this basis, the transaction is accretive to earnings in the first full year of operation post-run rate synergies and recovers our weighted average cost of capital within 5 years of ownership. Quality companies are characterized by talented people, differentiated technology, commitment to excellence, great growth prospects, and of course, high returns. Ball Aerospace hits the mark on all of these. Tom has covered the growth story in detail, but to recap, Ball Aerospace has almost doubled in revenue over the last 5 years and has exhibited strong book-to-bill over that same period. The business is projected to grow at around 10% per year for the next 5 and has the potential to reach $4 billion in revenues by the end of the decade. In combination with this high top-line growth, we expect the EBIT CAGR to exceed sales growth, leading to margin expansion over the next 5 years. After the recent infrastructure investments that Ball Aerospace has made, totaling more than $1.1 billion over the last 5 years, we believe it can deliver its growth with efficiency and quality. Crucially, the cash flow from this acquisition will be immediately accretive with high conversion levels, meaning all of our broader capital allocation plans presented to you at our interim results will continue to be fully supported. With the proposed addition of Ball Aerospace, we're excited about the rich collaboration opportunities of two elite businesses, Ball Aerospace and our existing Electronic Systems sector. On the operational side of the equation, we believe this new business will move from a current EBIT margin of around 10% up to around 12% in the midterm, including $30 million in synergy opportunities per year. This will come from a number of factors. Procurement synergies, as Ball Aerospace benefits from our global supply agreements across electronics and commodities, bringing the advantage of scale, greater sourcing efficiency, and speed. Improved program execution, leveraging the deployment of our proven lifecycle management program to achieve greater predictability in Ball Aerospace's approach to bidding, delivery, and risk management. Functional synergies by streamlining operations and leveraging more appropriate existing U.S.-based shared services. Given the complementary nature of the combined portfolio of electronics and Ball Aerospace, we anticipate adjacent opportunities for growth for both our existing U.S. business and the Ball Aerospace businesses, including in areas like electronic warfare and C4ISR. These combined efforts will take time to mature, we expect well over $2 billion in additional sales from cross-selling over the next 10 years in the electronic sector, which would only be possible as a result of this transaction. Our valuation of the business did not assume the conversion of these opportunities, but we feel confident in delivering them. As Tom said, the potential from this transaction is comparable to our acquisition of the Sanders Defense Electronics business, which has delivered sustained growth and margin expansion for over 20 years. We will be leveraging many of our Electronic Systems subject matter experts, together with the strong Ball Aerospace leadership team, to bring this valuation to life through a comprehensive plan. I wanted to spend some time to go a bit deeper on why the economic value of the deal is lower than the gross cash consideration. From the gross value of $5.55 billion, we will be able to realize a tax savings of over $750 million in present value terms by amortizing the goodwill under the Section 338 election framework. As I mentioned earlier, we have demonstrated our ability to deliver value in this manner post the acquisitions we did in 2020. The economic consideration for Ball Aerospace is $4.8 billion for an EBITDA multiple of 13 times based on estimated 2024 EBITDA, assuming full-year run rate synergies. This acquisition multiple is entirely consistent with U.S. defense trading multiples, as you've seen, Ball has above-market growth rates. Ball Aerospace will be EPS accretive after synergies and cash flow accretive in the first full year, return on invested capital will exceed WACC within the first 5 years of ownership. In terms of financing the transaction, we have a bridge facility which will be replaced with cash and debt issuance after completion. Pro forma net debt, excluding lease liabilities and pensions, is expected to be 1.7 times EBITDA. We are comfortable that this is well within the investment-grade credit rating parameters and below our U.S. defense sector averages. As we have demonstrated, we have a strong track record of managing the balance sheet, and we expect subsequent deleveraging post-acquisition across the medium term. This proposed acquisition is entirely consistent with our well-understood capital allocation hierarchy. We have been delivering on our priority of investing in the business, with increases in CapEx, R&D, and in our people. Because this acquisition is earnings and cash flow accretive, it will be additive to our capacity to continue to grow dividends, as we have done for almost 20 years. Because of the quality of this new business, our strong balance sheet is able to accommodate the added debt level without expecting to affect our investment-grade credit rating. As Charles said at the onset, we will continue to execute the in-flight and announced share buyback programs alongside this proposed acquisition. Over the last several years, we have significantly strengthened BAE Systems' operational and financial performance. Our recent interim results and upgrades to our full year outlook are marks on the map of that journey. This proposed acquisition will add high future-proofing quality to our already world-class portfolio and will strengthen our value compounding model, enhancing our top line growth, margin expansion, and cash generation, while protecting our strong balance sheet. I'm convinced that BAE Systems' future and potential for long-term value creation has never looked better. Over to you, Charles. Thanks, Tom and Brad. Before we move to questions, I wanted to reiterate some important points. Our strategy remains consistent. I'm certain we have the right priorities to continue to drive this company forward, and you're seeing that in our results. As you'll see in the slide, Ball Aerospace hits the mark on many of our strategic priorities, from expanding our existing end market exposure in the likes of space, C4ISR, and missiles, to developing new cutting-edge technologies. As our customers address a heightened threat environment, we will continue to invest in priority areas to deliver differentiating solutions across a broad spectrum of defense, intelligence, and scientific missions. As you heard from Tom and Brad, this is a highly attractive and long-sought-after business, which materially enhances our portfolio in the U.S., the world's largest defense market. It is a perfect strategic and cultural fit. The financials are strong, with a healthy backlog, visible revenue growth outlook, scope to improve margins, and high cash conversion. In short, a golden opportunity. We are pleased it comes at a time of financial strength for BAE Systems. We are focused on enhancing our financial performance and delivering sustainable growth in shareholder value, which we are confident will only be accelerated by this acquisition. In summary, we're delighted to secure this unique opportunity to strengthen our portfolio, industry position, and overall shareholder investment proposition. We very much look forward to welcoming the over 5,000 talented employees of Ball Aerospace into BAE Systems in due course. Thank you. We're happy to take your questions. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now take the first question. From the line of... One moment. Robert Stallard from Vertical Research, please go ahead. Thanks so much, and good morning. Yeah, morning. Good morning, Rob. I've actually got 3 for you this morning. First of all, on U.S. regulatory clearance, it looks like the Department of Justice is slightly more draconian these days than they have done in the past, particularly with regards to the scale of U.S. defense companies. I was wondering about your prospects of getting this through the DOJ. Secondly, post-completion of the deal, would this push BAE to over 50% of sales coming from the U.S.A.? Finally, on the margin expansion prospect, 200 basis points over the next 3-4 years, how exactly is that gonna be sourced, excluding the cost synergies? Thank you. Tom, do you wanna do the U.S. regulatory clearance, and then maybe, Brad, if you do the, the revenue split and the margin expansion? Yep. Sure. Thank you, Charles, and good morning, Rob. You know, as we have been tracking the regulatory environment in the U.S., we're seeing that moderate a bit, and it's also very important to note that as you look at the Ball Aerospace portfolio and compare that to that of BAE Systems, there is very, very little overlap. We believe from an antitrust standpoint, that this, this will be viewed favorably. This is also not a sort of vertical integration. This is a business, both of which represent solid merchant suppliers across the industry, and so, that will be our intent to continue. We are optimistic about the regulatory process. I hope that's helpful. Brad- Yeah, Rob. maybe for the, yeah. Yeah, yeah. Thanks, Charles. Yeah, so I, I think this will take us to just about 47% U.S. sales, Rob. Not quite the 50 there. In terms of margin spend-- I should say on sales, by the way, I mean, obviously, you, you saw the interim results and, you know, we talked about guidance of 5%-7% on the top line for 2023. With the backlog that we have and bringing this business into to the group, we're only going to improve our overall growth rate. We're growing, growing well now, and this will, will be added to that, clearly. On margin expansion, again, you know, if you look at the track record over the last three years as a group, we've, we've added almost 100 basis points to our margins. Now, when we acquire, when, when the combination happens, you know, we do expect continued improvement in how the standalone business has been running. We think, you know, 10%-11%, given the operating leverage that they're, they're starting to see, and you probably saw that in their own half year results, for, for the aerospace unit. You know, when we add the synergies to that, we'll just get beyond the, that sort of 12% number eventually. We expect their margins to be accretive, just given where they're, they're, you know, the, the sort of the momentum that they're already generating across their business. With synergies on the top of that, it will be even more margin accretive to the group. Again, we expect to ultimately get to above 12% there, once we realize the full run rates. Okay, that's great. Thanks so much. Thank, thank you. We will now take the next question. From the line of Ian Douglas-Pennant from UBS, please go ahead. Thanks for taking my question. Yes, it's Ian at UBS. Firstly, can I just check something on the tax synergy? You made a, sorry, that the tax assets that you've, you've generated, you made a comment. I just wanna check: Are the, are the tax benefits that you cite due to the tax shield provided by the amortization of PPA? Or to put it another way, if we, if we could see the balance sheet of the acquired entity, would there be a tax asset on that entity? Secondly, how easy is it for you to share Ball Aerospace's technology across the group, given the high number of classified employees within that? Thirdly, a short question, could you give us an indication of the incremental cost of debt that you expect to raise as part of this deal? Thank you. I suggest maybe, Brad, you do the first part on the tax assets and the cost of debt. Then we bring Tom in to talk about the sharing of the aerospace assets across the rest of the group, which obviously, given the global reach of BAE, is a longer term opportunity. I think maybe Tom is best placed to comment on that. Maybe if you go first on 1 and 3, Brad. The way this works from a tax perspective is the goodwill that ultimately gets recorded in the transaction gets amortized over a 15-year period. You get basically tax relief on that. It doesn't actually show up in the management book, ETR, but it does show up in terms of reduced cash tax that you pay. It just works out to be a 15-year amortization of that, of that goodwill. And that's as easy as I can probably explain it. And then on the- Sorry, if I, if I could just, if I could just follow up. That means this $750 million wouldn't get... Sorry, your shareholders don't get that today, they get that spread over the next 15 years. Is that correct? Yeah. That's, and what we've recorded and what we talked about today, is the present value of that sort of discounted, to, you know, today's cost of money. It's, it's a present value calculation. And again, this is exactly what we did in the acquisition of, of the Raytheon's Collins businesses. You know, we communicated, you know, the, the, the deal in terms of that net value at, at that time. We've very much seen, you know, the, the, this process, this mechanism, work. That's why we, you know, that's what we talk about in net terms, because we, we see that these are real and demonstrable. Then I think you had a question on the interest expense. Yeah. So I think, you know, we're gonna, we're gonna bring, once the, the bridge is in place, we'll take the bridge out with the, with the combination of cash and, and fixed term debt. We'll probably have mixed maturities across that. I mean, given where the yield curve is at, and you can sort of imagine that it's gonna be circa 5.5% for the interest expense on that. It'll obviously depend on how much cash we put in, and how much we actually do issue for debt. I think 5.5% is the number that we're, we're modeling today. So you can kind of do the math on incremental interest expense. Obviously, you'll, you'll do it post-tax, I'm sure. Maybe if we just bring you, Tom, some of the opportunities to use the global footprint. Yes, thank you, Charles, and good question, Ian. I mean, now with almost 25 years of presence in the United States, we have an enviable record of upholding the national security interests of all the countries in which we serve. To your point, I mean, we will go to great lengths to ensure we sustain that reputation. You know, that said, I mean, there are a number of civil and commercial technologies, you know, interest in Earth science, for example, does bring opportunities for more of a global, a global portfolio around in that area. We are very good at understanding and working within the rules of ITAR and technology transfer across borders, we will continue to do that. I think, as, as we think about synergies, the bulk of that will be within the U.S. portfolio for those reasons. Especially with the Electronic Systems sector, where there are some very complementary capabilities that we will look to leverage. Thank you. Very clear. Thank you. We will now take the next question. From the line of George Zhao from Bernstein. Please go ahead. Yes. Hi, good morning, everyone. First question on the leverage. Now, the 1.5 times post-acquisition, you know, that'll be quite higher than the 1 time leverage you had in 2020 post GPS acquisition. What's the right level of leverage for the company going forward? That's the first one. The second one, you talked about this deal being margin accretive, this being a high quality asset, but if you look at the 12% margin, now, that's gonna be below your Electronic Systems segment margin. So that's unlike that military GPS acquisition that enhanced the segment margins. Given that you talked about many different domains of potential interest for BAE within ES, I guess, you know, why was this the right asset to acquire given the segment margin dilution? Thanks. Maybe, Brad, do you wanna- Yeah. Hi, George. Yeah. Yeah, look, on, on the leverage, if you look at, at, you know, 1.7, to use your number, you know, you compare that to our U.S. peer average, which is 2.1. I think the, the leverage is entirely consistent with US peers. I think it's entirely manageable. As you said, you, we, or as we've said, we, this, this deal is cash accretive from the beginning, so it simply strengthens the, you know, the group and the financial performance of the group. The, the debt that we're taking on is quite productive debt, because the EBITDA that we're acquiring is, is almost 2 times that of the incremental interest expense. The leverage is entirely manageable, and even with the added debt, it's still something that gets us below U.S. peer average. I think this is entirely comfortable. Maybe Tom, would you like to comment on the, sort of... Yeah, combination. The combination effect? Sure. Yeah, the combination effect, yeah. There are a couple of very important elements that we looked at with respect to this portfolio, this asset within our portfolio. Not the least of which is how this business in the company with similar DNA, with global procurement power, you know, across much of the commodity that is in the supply chain for Ball Aerospace, that we'll be able to bring that, those kind of qualities and opportunities to that company, and that will help with their margins. We also expect, you know, similar and cohesive processes will help to drive that. Just looking at the synergies between ES and Ball Aerospace, and how the complementary nature of the portfolios, where we have adjacent interests, they have core capabilities. Where they have adjacent interests, we have core capabilities. I think that between the two, that's gonna drive some very interesting synergies over time. You know, just puts us in the, the lane of opportunity for growth within the space market, that we would look to leverage further within ES. I hope that's helpful, George. Thanks for the question. Thanks. Thank you. We will now take the next question. From the line of Benjamin Heelan from Bank of America. Please go ahead. Yeah, morning. Thank you, guys, for the question. First one is, h- how should we think about the big competitors in this space? In that U.S., domain in particular, how, how, how is the competitive environment, and how do you see that playing out? Second question, you've got a comment in there around cash conversion being over 80% of EBITDA, of EBIT. Is that broadly how we should think about that medium term, or is that just a 2023 dynamic? Then final question, you've got an order backlog in there of $8 billion it looks like. Is that something that you would expect to continue to grow over the next 3-4 years? Thank you. Thanks so much, Ben. I think on the competitive environment, if you could maybe pick that up, Tom, and then over to you, Brad, for the cash conversion, and the order backlog. I think maybe, I mean, Tom, you by all means, comment on that, and if there's anything you want to add to that, Brad, as well. Thank you, Charles, and hi, Ben. You know, as we look at the environment in the space segment, I mean, not, not unlike all of the other sort of platform segments, this is an environment where we both work with and compete against many of the, the, the players in that part of the market. Ball Aerospace is a trusted supplier with, to, to, to many, if not all, of the space primes, and we would continue to do that as a merchant supplier. Ball does have some offerings as the world starts moving towards smaller satellites, some offerings of their own, where they have been able to compete and win. We, we see this very similar to how we see our airborne markets, et cetera, where we will be working with and competing against some of these same players over time. Given the nature of their technology focus, they've had good success, and we expect that together, we'll be able to, to drive that even further. I think a very good outlook. Thank you, Ben. Yeah, Ben, on the, on the cash question you had. Yeah, if you look at what, what Ball Aerospace has been doing over the last several years, they've, they've been pretty CapEx intensive because they've been investing in infrastructure. Now that program has come to an end, we're picking up this business right with a new, fresh, you know, set of, of facilities that are, are world-class and, and ready to go. You know, I think when you look at CapEx intensity going forward, it's gonna be far lower than what it, what it might show in the last several years. What we see is the depreciation amortization will probably be a good 1% or 2% higher than CapEx going forward. You know, cash conversion is therefore going to be far higher, and I think working capital is gonna be, you know, fairly manageable too. We think, I mean, that, that number that you mentioned, that, that greater than 80%, we do think that's a good long-term run rate in terms of a conversion number. Of course, it'll be cyclical with ups and downs, you know, every once in a while, just with investments. By and large, that's the number that we are comfortable with using for our own model. If you protect that against, you know, this, 10% CAGR growth rate on the top line, and, you know, the kind of the 12% margins that we've been talking about and extrapolate that out, you can get to a pretty meaningful, free cash flow number that this, business is gonna start delivering. Then, on the order backlog, Tom or Brad, do you wanna comment on that? Yeah, maybe I'll just start and, and let Brad fill in. You know, if you look, as I mentioned, those 3 sort of primary trends in the world around us and, and how those are driving the, those, the respective markets, you know, space in general, I mean, you, you see it in all the headlines, and this is an increasingly important area, for national defense, and then, as I mentioned, for earth science as well. So we see and have seen, those markets, continuing to grow, some at double-digit rates. Then the point around, being part of the munition supply chain in a world, where, countries are backfilling, more than ever before, we, we see that, market growing, double-digit as well. It's our expectation that while the, the portfolio, the exposure of that portfolio into those markets is not completely uniform, that we will continue to see growth and that, that, that level of backlog or higher, is certainly within sight. Brad, anything to add? No, I, yeah, I think, I think that's great, Tom. Thanks. Cool. Thank you. Appreciate it. Thanks, Ben. Thank you. We will now take the next question. From the line of Nick Cunningham, Agency Partners, please go ahead. Yeah, thank you. Good morning, gentlemen. Just 1 question, really coming back to George's question, about the margin. It's doing 10%, going to 12% on your plans, but BAE ES makes 15%-17% already, and is ostensibly, I think, a similar business. I was wondering if there's any structural reason why Ball makes such a substantially lower margin? Perhaps, does that have something to do with the high percentage of cost-plus contracts, and it's almost half of revenues, and will that mix change? Will the margin mix change as those contracts mature, or do you keep on expecting to renew one, and therefore, for the mix to remain similar? Thank you. Thanks for the question, Nick. I think probably, Tom, you wanna go first on that, and then, Brad, by all means, follow up. Sure, Charles, and Nick, hello. Yeah, just coming back to the point around, you know, while, while maybe not, maybe not structural, I think I would make the point, I guess two points. One, you know, for the very reason, we, we mentioned earlier, as part of a, as part of a company with like, supply chains, with similar customers, you know, the, the sort of process synergy and the ability of the teams to, to kind of leverage each other's history, experience, connections, you know, supply chain leverage, as I mentioned, you know, sort of global buying power, these are the, these are the kinds of things that will underpin margin improvement. Then secondly, as also mentioned, Ball operates at multiple tiers of the supply chain. When you think about and look at prime level margins across the, across the industry, at platform-level margins, that, that is, that, that drives some of the margin mix that Ball experiences. What we're, what we're hoping to see is that ES, together, ES and Ball will be able to, again, operate and, and take advantage of each other's adjacencies, in order to drive each other's margins up over time. Brad, anything you want to pick up on that? No, I, I, I think that's perfectly articulate. I think just the point about margin accretion is, is, you know, we're making it accretive to group margins. You know, that is really the point. It will lift up group margins and be additive to that. I mean, Tom, Tom described what we think we can do with electronic systems collaborations, but, you know, overall, it's going to be accretive to group margins. I, I think that's the key point. Yeah. Thank you. I think we shouldn't forget that, that ES over, you know, the years that we've been associating with it, have been on a margin trajectory improvement, over a number of years too. I think, you know, there's definitely, potential for, for this business over, over time. Thank you very much. Thank you. We'll take our next question. Please stand by. We will now take the next question. Line of Ross Law from Morgan Stanley, please go ahead. Hi, good morning. Thanks so much for taking my question. Hi. Just to follow up on the funding, can you just confirm what the mix of cash and debt that you're assuming today, and what should we use as the opportunity cost of the cash element? Is sort of maybe 3% reasonable? Secondly, just some R&D spending. What's the percentage of sales that the business currently spends, and how do you expect that to trend going forward, given the high tech nature of the end markets? Thanks. I think the first one is for you, Brad, and the second, for you, Tom, on R&D spending. Yeah, I mean, I think the, the current assumption, as you can see, that the interim results, you saw a pretty high cash balance that we had at group level. You know, we, we can contribute a decent amount of cash into the deal. You know, an unreasonable model, not an unreasonable model or assumption would be about GBP 4 billion in debt and the rest in cash. Of course, that's gonna... We'll, we'll see where we get to, you know, when we finally clear all the regulatory procedures and then take the bridge out as soon as we can. It's not a bad assumption to kind of think about it in those terms. I think the question on R&D percent, what we do see is that they, they have a really good tax efficiency around what they do in R&D. I think that's an important point, that if you look at the standalone ETR of Ball Aerospace, it's about 15%. That's because they do have this R&D tax credit mechanism that's in place, which will continue and carry on once it combines with us. It's quite an effective way of spending R&D, and we'll get, we'll get back to you on the percentage of sales, unless, Tom, you've got something on that. Yeah, yeah, I think it's comparable with what we see in Electronic Systems today. I'll point out again, just to tie that to an earlier question, another advantage we see in synergy across, between ES and Ball Aerospace is the FAST Labs model that we have and our ability to capitalize on R&D and cooperative research and development funds from the government through DARPA and Service Labs that we're able to leverage that in order to supplement our own R&D spending. We would bring that very same model to the combined entity. Just a quick follow-up. Do you expect your proportional investment in R&D to increase going forward, given obviously the, the, the growth and the, the changing nature of the technology in space? Or can we expect that to stay stable, and that's sort of what's baked into your margin outlook? Yeah, I think as a% of sales, we would look to stay stable. I mean, I think we-- one of the benefits of the breadth of the portfolio is we make key decisions, every day onto, into which way we will steer our investment as we follow our customers' priorities and make sure we're staying aligned with what we believe will be their future interests. We've gotten quite good at that over these last decades, and we would expect to continue that. Understood. Thanks, all. Thanks, Rob. Thank you. We will now take the next question. From the line of George McWhirter from Berenberg. Please go ahead. Hi, good morning. Thank you for taking my question. Just on the buyback, how should we think about the pace of repurchases going forward? It's clearly been running at a rapid pace of about $1 billion a year. How do you expect that to trend in, in the future? Thank you. Brad, do you want to take that one? Yeah. Well, it's really important that we, we emphasize that, that we will continue the buyback program. That, that's clear. Yeah, I mean, I think if you look at the GBP 1.5 billion over 3 years, that, that will start after this in-flight program finishes, you know, it's probably gonna be a more evenly distributed pace across the, the next 3 years for that GBP 1.5. You know, obviously, we, we look to deploy capital in ways that, that create value and, and, and a, in a very balanced way. I think what we're talking about today is, is, you know, is representative of that. Yeah, I think the, the pace going forward will be a little bit more evenly distributed, probably. Great. Thank you. Thank you. We will now take the next question, from the line of Christophe Menard from Deutsche Bank. Please go ahead. Yes, good morning. Thank you for taking my questions. Three quick questions. The first one, back on the margin and the synergies, I mean, it could be a very simple rule of thumb, but on 2024 sales, I think we're talking about 1.4% of sales for synergies. Isn't it too conservative? Are there ways to do much better than this? As a consequence, to improve your EBIT margin, that's the on Ball Aerospace, quite obviously. That's the first question. Second question on the fixed-price contract, 55% of your contracts are fixed-price. I've, I, I guess you had the time to do all the due diligence on this. Are you confident about the risk on execution of those contracts? The last question is on the culture. You, you mentioned several times, the culture, there is a common culture. How do you think it will facilitate integration? I understand that, Boeing is very, I mean, localized in Colorado. Is it a point that will help the integration of your businesses with ES? Can you please expand a little bit on this? Thanks. I'd suggest that we might wanna do that in kind of reverse order. Tom, if you could do the fixed-price risk. I know that was a big focus from our perspective of the due diligence, and then the cultural integration, and by all means, comment on the margin and synergies, and maybe Brad can come in on that as well. I'd suggest we go to you first, Tom. All right. Yeah, you know, as, as mentioned, I still marvel at how well aligned our, the cultures are between the two entities. You're, you're right in the fact that Boeing Aerospace is largely co-located in Colorado. For obvious reasons, as I mentioned, this is where Space Command is, this is where much of the U.S. space industry has gathered for, with customers and quite a talent pool. You know, I think underneath it all, then when you, when you think about the, the talent, and their affinity to the mission, that's what drives this sort of cultural alignment. I mean, they have very similar beliefs in the need to focus on technology well in advance of its need in the marketplace, in placing, you know, the right sort of estimates around which are the technologies that are gonna matter. I think that, that is just gonna be a hand-in-glove fit with the way that we do things. As I mentioned earlier, I think the combined entity will be able to leverage each other's experiences, you know, our, our interfaces with the DARPAs and the research labs, in order to drive that capability even further. I think people-wise, one of the benefits that Ball Aerospace sees in being part of BAE Systems, again, in the markets that they operate, now they will be part of a bigger company which operates in those same markets. So, the ability of people to flow back and forth, to have career opportunities across a broader set of a larger company, is of great interest to them. The kinds of training programs, the kinds of process that we bring to bear across a very broad defense and aerospace portfolio, are highly applicable to Ball Aerospace. So they'll be able to leverage that and benefit from that. So they're just, just really, really enthusiastic about the, about the fit overall, and as I mentioned, that sort of mission focus. You know, I think that the, you know, the point about the geographic concentration, I mean, in today's world, this, this is not about exactly where people are, it's about who they are, how they operate, how they think. We are, as I, as I'll say again and again, very, very enthusiastic about how that will play out. I hope that's helpful. We did do in the course of diligence, and it is characteristic of us to do very detailed due diligence, look into the breadth of the portfolio across all of the different program types. We see good, very good discipline in Boeing Aerospace as they take on and execute fixed price programs. They, like us, I would characterize our sort of risk tolerance to be very similar. So while we will take on risk from time to time, in order to, you know, to make our way through the market, portfolio and be able to, to take on programs and get into growth areas, they have a very sort of, I'd say, highly disciplined, and tempered approach to how they do that. So we are, you know, just a step back, big picture, I think the risk is low and highly manageable. So not too concerned about that. Was there a third question, or are we over to Brad now? The, the question was on margin and synergies and, and, and I think what the question was, that Chris was getting at, is, are we being too conservative on our, our margin opportunities? Oh.[crostalk] I'll leave you comment on. Margin synergy. Yeah. Yeah. You know, I mean, we are, I think we are taking a modest approach, and, as the businesses come together, we are going to continue to explore that and find ways that we can improve that over time. I think you know, just to elaborate one more minute on the, the nature of the margins in this business. I mean, if you look across the Inc. portfolio writ large, we operate at every tier of our industry. We operate at the platform level, at the system- level, at the component- level, and, you know, margin expectations and growth opportunities vary across those tiers. And so what you see in Boeing Aerospace is they, they too operate at multiple tiers, and so they are not a purely ES business. They have platform-level business, just like the Inc. business does. So you see that mix of, of achievable margins in across those. So where, where those synergies will drive us is in the direction to capitalize on the global supply chain, the process synergies that we hope to continue on the path of margin expansion over time. I hope that's helpful. Over to Brad for any, anything else. Yeah, Brad, do you wanna pick up on that? Anything there? Yeah, I think, you know, pretty comprehensive answer is, you know, I think we have been, as Tom said, modest or, or conservative on, on what we're talking about. We, we didn't want to broadcast a, you know, a, a big splashy number. We do think that there's more opportunity than what we've expressed here. We do have actually a lot more synergy identified, but we are also assuming that some of that flows back under our, our, the, the, the cost models that, you know, that we're going to inherit. I think some of that is part of the synergy and, and, how we move forward, and I think we can evolve, you know, some of that, that mix of, of risk between the fixed and cost, using our LCM framework, and actually, be additive to margins from, from what we've been talking about. I think the opportunities are, are real, and they're there. We've been very conservative in how we've talked about them. Some of it does get, flowed back to the customer, just in the current business models that, that are in operation. Overall, we think that there's, every opportunity to get this business over 12%. And, you know, we, we think we can, build that as a, up from a foundation and go up from there. We'll, we'll, we'll continue to drive the business. We're focused, as you've seen, on margin expansion across the group. It's a real value of ours that we hold, and we'll continue to drive the group for more margin expansion, and with this acquisition, it's no different. Thank you very much. Very clear. Thanks, Christophe. Thank you. We will now take the next question from the line of Zafar Khan from Société Générale. Please go ahead. Thank you very much, good morning. Just, if I could please ask a couple of clarification questions. On the margin, I know that Ball in 2021 and 2022 reported about a 9% margin. The 10, I guess, is your assumption for 2023, and then you're talking about going to 12%. Is there going to be any restructuring to get there, or is it purely synergies on purchasing and top line? That's the first clarification, please. Do you envisage any restructuring of the Ball business? Secondly, Tom, you mentioned in terms of the competitors being collaborators as well as competitors, who are the sort of main names? Is it the big primes, you know, Northrop, Lockheed, Boeing, or are there some smaller names that we should be thinking about as being competitors in this environment? The, the third one was just on, I imagine this was a, a competitive tender process. How long did it take from beginning to end? Maybe on the margin progression, again, I mean, Brad, do you wanna go first on that and then hand over to Tom or the other way around? I think on competitors, obviously, Tom, you're, you're best to tackle that one, and then on the, on the process, I mean, it's been running for several weeks now, with some extensive due diligence. Again, Tom, by all means, you can comment a bit more on that. On, on the margin point, I mean, Brad, do you wanna go first on that? Yeah, I think if you look at the, the recent history of, of, Ball Aerospace, in the last, you know, two, three years, I mean, like, like everyone, they had supply chain challenges, and, and, you know, they're coming out from the other side of that like, like everyone is. Those margins that you might be looking at historically, you know, certainly would have been affected by that. If you looked at what they did at the half year, recently reported, they're, they're showing really strong, recovery, and we expect that to continue. You know, that, that 10% is the number we sort of estimate they finish with for the year. You can see from the half-year results, they're already starting to deliver pretty good returns. As their their business grows, you're, you're gonna start getting some operating leverage, and have some maturing programs as well that come off. The mix of their business is pointed to, standalone margin expansion. Then on top of that, we start adding the synergies, which as you, as you point out, the majority of which are procurement-oriented. There, you know, there's, there's nothing around restructuring and, and how we're thinking about the material opportunities around synergy. It's really predominantly procurement. Again, you can imagine Ball being part of-- Ball Aerospace being part of a company that is largely around canning and, and packaging. Moving Ball Aerospace into our group, they're now going to benefit from significant scale on the very electronic items that, that they procure. Moving those into our pricing agreements, you know, that's really an important synergy. There are many other synergies along those lines. That's really the, the, the biggest part of how we're looking at it. Maybe, Tom, you wanna build on that? No, I think you captured it. I think you captured it there, Brad. I guess I'll touch on the, you know, just to come, come back to the competitive environment. The far we are, you're, you're exactly right. I mean, the larger primes are amongst the, the longstanding satellite spacecraft providers. For, for a very long time, Ball has been in the supply chain of these various primes. As the size of satellites, as the number of satellites starts to, you know, there are, again, multiple tiers even within the spacecraft and satellite market or competitive landscape. So, Ball does have and has, has provided satellites of their own. So they operate at multiple tiers, sometimes as prime with their own scientific instruments, let's say, or their own payloads. Other times they are, you know, much of their technology is centered on payloads. You know, if you go way, way back in their history, they built star trackers, which are the devices that use the positions of the stars in order to ensure a satellite is maintaining its position as it orbits the Earth. They've been doing that for many decades. The nature of what they provide at multiple tiers positions them well to be a merchant supplier amongst the primes, and then where there is opportunity to compete for a sort of prime level or platform-level opportunity, they've done so. That tends to be for the smaller, more modest satellites. Hopefully, that's helpful. Yeah, thank you. Thanks very much. Thank you. We will now take the next question from the line of Olivier Brochet from Redburn Atlantic. Please go ahead. Yes. Good morning, Charles, Brad, and Tom. I would have a couple of follow-ups on the various ones already asked. First of all, prime contracting directly with DoD, NASA, and other U.S. agencies, how much of revenues is that? Second, in fixed-price, do you carry any material or fixed-price development contracts that are still, I would say, early in their stage? And does this fixed-price business carry some escalation more generally? And last question, do you have any major contract coming up for renewal in the next, let's say next couple of years? Thank you. I think, Tom, you're probably best placed. I mean, these are all questions specific to Ball Aerospace, so I think, Tom, you're best placed to comment on, on all of those, three. All right. We'll, we'll start with the, the last and work forward. I mean, when we look at the, the programs that are currently underway, these, these are... When, when you, when you use the word renewal, much of what they do involves, you know, getting in on the development opportunity, seeing that development opportunity through, and then transitioning into production. Those programs, you know, sort of continue to flow through that sequence. It's not a, you work on it for a year and then, you know, compete to, to work on it the following year. Much of what they do is captured in the front and then transition out through production. One, one of the things about satellites, although as we move to more and smaller platforms, the, the, the quantities of these and the complexity of these involve programs that last over many years. You know, that's part of the plan, that's part of their bidding discipline, in, in order to make sure that they are, you know, positioned to execute profitably, but over that long haul. You know, the, the risk of renewal of programs is, is not high. That, that said, what they do do from year to year is compete on new things. You know, as we all do, they'll have, you know, a host of opportunities. They will pursue that set of opportunities, and there will be a yield against that in a, in the competitive set. As a merchant supplier, you have the opportunity to, to provide bids to numerous primes, and in that, in that way, regardless of the prime who wins, you may be positioned to win as well. It's, it's kind of that mix that they see. Our, our assessment of their growth and prospects is driven by that understanding of the market and of, of the opportunities that they have before them. Now, Olivier, could I just ask you, ask you to go back and, and ask the earlier question again? I'm sorry. Sure. No worry, no worries. Thanks for the 1st answer. The 1st one was on the prime contracting with DoD, NASA, and the other government agencies. How much of the revenue is that for Ball? Then the 2nd question is on fixed price and whether there are large fixed price development underway that are just at the early stage of their life. Yeah. Yeah. Okay. No, very good. In terms of the fixed-price programs, you know, there, there are no large, scary fixed-price development programs that they have before them. As I mentioned a bit earlier, I think when we, when we look at an ES portfolio and the sort of mix of fixed-price and development, the dominant fixed-price programs are in production, where you're able to, you know, sort of capitalize on a known configuration for what you're building, and, you, you know, sort of the ability to deliver that. Less about development. When it comes to their portfolio into the customer set, they are about 60... 60% of what they do, is, in, in a prime contracting, sense, directly into those customers, and about 40%, is as part of the supply chain into the larger primes. Thank you. That's very clear. On the fixed-price side, do that include, on the production, escalation to just, absorb costs and pass it to, to customers? Well, they... Are you? In, in the same way we do across the rest of our portfolio. I mean, the nature of program funding in the U.S. is a year-to-year funding profile. So they, like us, have faced into the inflationary pressures in the supply chain, and are, you know, obviously in the cost-plus programs, passing that through as a cost of doing business and on the fixed-price, absorbing in the near term, but then repricing as opportunity allows. So, you know, very, very similar to approach to what we've been executing. Thank you. Great, great deal. Thanks. You too. Thank you. We will now take our last question. From the line of Charlotte Keywood from Barclays. Please go ahead. Morning, gents. I just want to check you can hear me this time? Hey, Charlotte. Yeah, very clear, Charlotte. Great. Just yeah, just one from me. I think everyone's got their first. It was just on pensions actually. I, I cast my mind back, and I think you qualitatively made a comment around FAS/CAS headwinds next year for the U.S. pensions. You offset them through operational performance. That's very much in line with kind of the U.S. as well, of your U.S. peers. Is that still the case, or does this dynamic of taking on additional U.S. employees change that somewhat? The follow-on question is also, does it change the recovery date, the full recovery date of 2026 at all? Brad, do you wanna take that? Yeah, I, I don't think I would say that anything changes from this, Charlotte. Okay. Short but sweet. Thank you. Get you back on your vacation. Yeah, I'm going back to pool. Thanks. Thank you. There are no further questions at this time. I would like to hand back over to Charles Woodburn for final remarks. Not too much more to say other than to thank everybody for joining at short notice, and we look forward to seeing many of you as we get out on the road in the coming weeks. Thanks for joining. That does conclude our conference for today. Thank you for participating. You may now disconnect.