Hello, and welcome to the BAE Systems 2024 half-year Q&A session. At this time, all participants are in a listen-only mode. After a short introduction, there will be a question-and-answer session. To ask a telephone question, please press star one one on your keypad to join the queue. To withdraw your question, press star one one again. Please be advised that today's conference is being recorded. I would now like to hand over to Charles Woodburn, CEO. Please go ahead. Thank you. Good morning, and thanks to everyone for joining us today. This has been another excellent half, building on the high operational cadence we delivered in 2023. Hopefully, you've all had a chance to listen to our results presentation, so I'll just cover our three clear messages from the presentation, and then we'll open up the call for questions. First, we've upgraded our full-year guidance across all our key metrics after another six months' strong operational and financial delivery, which translated into double-digit percentage sales and EBIT growth. Every one of our sectors contributed to the company's strong growth, enabled by the combination of our focus on operational performance, supply chain management, and our diverse geography and capability portfolio. Second, we continue to make significant strategic progress that positions us well for the future. In particular, AUKUS, the Global Combat Air Program, or GCAP, the integration of our new U.S. space business, and the strengthening of our autonomous unmanned aircraft systems and drone capabilities. Additionally, we are increasing investment in the business to support our growth profile. This includes expanding self-funded R&D by double digits, primarily in our Electronic Systems business, where we continue to see strong returns on investment. And increasing capital expenditure, primarily in Maritime and P&S, reflecting programs with good visibility and longevity. And third, we have the visibility and are delivering on our value compounding model, with the demand backdrop in the past six months enhancing the potential upside to our base case expectations. And before I move to the Q&A, I just wanted to go off script slightly and acknowledge that this is Martin Cooper's last week with us. Martin's been with the company for 20 years and our IR director for the past eight, and we're extremely grateful for his contributions. Martin's job is a critical one, and we've relied on him immensely. And I know there's a lot of us who are missed working with him. Martin, we wish you well with your new job, and we look forward to our paths continuing to cross. And with that, I'll hand over to Brad, who also wants to say a couple of words. Yeah, just to add to that, Charles. I mean, Martin's been a huge part of how we've changed the equity story and built a really strong narrative and a big part of how we've created value and told you all about that value creation. So I just wanted to thank Martin for that incredible effort he's had and the impact he's made on the company. So yeah, just thank you very much, Martin. So much. Ready to go to questions? Is there anything you want to say there, Martin, before we go to questions? Thanks, everyone. The company's very well set, and I look forward to following your progress in the coming years. Great. Shareholder. Let's get on with questions then. Thank you. As a reminder, if you wish to ask a question, please press star one one on your telephone. Please stand by for your first question. First question comes from Robert Stallard at Vertical Research. Please go ahead. Thanks so much. Good morning. Hey, Rob. Hey, morning, Rob. I'd like to echo your comments as well, Martin. All the best for the future, even as a Leicester Tigers fan. A couple of questions from me. First of all, it's probably for Charles. There's been a lot of discussion of late about potential European defense consolidation. Is this something that BAE Systems would be looking to get involved in, or are you happy with your portfolio as it stands? And then secondly, probably more for Brad on the free cash flow. Is there anything lumpy on advances that we should be aware of in the first half of the year or that you have included in the 2024 guidance? Thank you. Yeah, I think on European defense consolidation, it's one that we're watching carefully. I'd remind everyone that we already have a very strong footprint in Europe, not least our two Swedish businesses, Hägglunds and Bofors, our position with MBDA, the 37.5% shareholding, and our position on the Eurofighter consortium. So we're already well represented in Europe. But I think as the demand increases, there will be some opportunities for potential consolidation, and we'll keep an open eye on those. Maybe over to you for the next one, Brad. Yeah, thanks, Rob. So free cash flow in the first half of the year of this year, it didn't have any material advances. And of course, this time last year, we had some pretty significant advances in the air and P&S sectors. So the comparable is what you see that delta is coming from those advances last year. Going into the full-year guidance that we've upgraded to GBP 1.5 billion, we don't expect material advances in the full-year guidance. And we've always said, as we look to three-year guides, that we never really include those material advances in our guides. And if they do come in, that would be upside to the guides that we've presented. So nothing material expected this year in our go-forward three-year guides. If we did receive anything, that would be upgrades to those guides that we've got. That's great. Thank you very much. Thanks, Rob. Stand by for your next question. The next question comes from Ian Douglas-Pennant at UBS. Please go ahead. Thanks very much for having my question. And Martin, looking forward to keeping in touch in your new role. Maybe we could start with a question on margins. Are margins now approaching the peak? It feels like P&S margins in particular are very attractive at the moment. I mean, is there further work to be done here, or are we close to the end? Secondly, within Maritime, within a series of above at least my expectation prints in the last few half years, is this a question of it doesn't feel like demand from the customers, or I guess, and demand has increased in some ways. Should we regard this as revenues being pulled to the left and therefore it comes out in future periods, or is this just increased prioritization of spending and therefore sustainable? Thank you. Maybe I'll let you do the margins one. Brad, and I'll come back to the Maritime. Yeah, so we're not done on margin expansion at all. We've got a number of levers that we're looking at to drive margin expansion going forward. I think across the sectors, there's a number of initiatives that are underway to generate efficiencies to do that. But if you think about operating leverage and the sales growth that we're looking at across the medium term, that alone will bring a little bit of margin expansion as that sales falls through on a well-controlled cost base. So that's part of it. I think there's a mixed component too, where you've seen the impact of SMS, and that's group accretive as we outturn at age one at 11%. We've got businesses that are growing that are margin accretive. So that will drive margin as well. And if you pointed out P&S, I think there's still business units within P&S that have more runway left. And if you think about Hägglunds and the growth that we're going to see over the coming years in Hägglunds, that's also a sector accretive margin profile. So that will help drive margins. There's a number of things that we're doing that will drive margins higher. So we're not resting where we're at. And then just quickly on Maritime, I mean, let's not forget, as it's reported, it's Maritime and Land. And it's actually quite broad-based that we're still at fairly early stages of some of the big programs within that. But you've got growth in subs. You've got things like the Hunter Program, Hunter Class Frigate Program in Australia now starting to step up. And of course, within that, you've also got the Land business, which is munitions, which is also growing, admittedly, from a relatively small base, but you've got growth there too. So it's broad-based within that sector. Please stand by for your next question. The next question is from George Zhao at Bernstein. Please go ahead. Hi, good morning, everyone. Hey, George. First on BAE Systems. Under prepared remarks, Tom cited some of the impacts of CR and delayed awards, reducing this year's growth outlook to mid-single digits, but next year should recover to double digits. But is this contingent on us not seeing a similar CR effect next year? Because we've seen CR quite often now. And broadly for the portfolio, your Cyber & Intelligence is the segment that we think of as being most prone to delays from CR. So I mean, is SMS similar, or were there specific awards for this year that were impacted? And second one, just on cash, you took up this year's cash. You took up the 2022 to 2024 rolling cash guide, but you left the 2023 to 2025 and the 2024 to 2026 rolling guide intact. So is that just conservatism, or was there any pull forward of cash from future years into this year? Thanks. On SMS, you want to take that one, Tom? Sure. Happy to. Good morning, George. Very good question. I mean, as we look at the portfolio across SMS, it just happened that this year, there were a number of program starts that ended up aligning with this delay in the CR. As we look forward, we don't anticipate that happening again next year or years beyond, for that matter, as we understand where awards align. And so we think this was a one-time event. We're five months into the integration of this business. It's performing very well, and we just had this one bit of delay that we expect, as pointed out, and as you noticed, will start to recover here in the second half and then back on plan for next year. Thank you, Tom. Brad, for cash. Yeah, hi, George. Yeah, so first of all, the GBP 1.5 billion upgrade, or the upgrade to GBP 1.5 billion for this year, just mechanically brings that 2022 to 2024 number up past GBP 6 billion. Going forward, we're seeing the business generate, as you say, more than GBP 5 billion every three-year period. And just back to my earlier comments as to Rob, as you know, George, we don't include material advances in our cash guides, but we do assume the burn of advances. So I think generating GBP 5 billion every three years in that context is good delivery. And of course, if we do get those advances, those would be upsides to those GBP 5 billion guides that are in play. So in other words, the upgrade for this year is based on better business performance as opposed to anything pulling forward from next year? Yeah, I think that's correct. All right, thanks. Thanks, George. Please stand by for your next question, which comes from Olivier Brochet at Redburn Atlantic. Please go ahead. Yes, good morning, Charles, Brad, and Martin. And Martin, thanks for all the help all these years. I would have three quick ones. The first one in Electronic Systems, commercial was very slowly growing. Is there anything beyond the CFM business that explains that? Second, in Air, your U.S. programs are broadly flat. Is it coming just from OE, or do you have also slowdown in support or no growth in support? And third, in the cash flow or operating cash generated in HQ or consumed in HQ, how does it look for the second half of the year versus the first half, please? Well, over to you maybe, Tom, for the ES comments around ES. Yeah, certainly. Thanks for that question. On the commercial side, we have, as you point out, through our engine controls business, a lot of kind of aftermarket effect that we've seen actually recover well. We also do flight controls that feed into and other cabin electronics that feed into the likes of 737 MAX, 777, etc. So those programs are all being paced by OEM deliveries. Again, on track and on plan. I think that business has recovered well. Its margins, obviously, accretive to the overall portfolio, certainly to ES. We're tracking the plan. Thank you, Tom. On U.S. programs, so as you know, the majority of that is F-35, and the manufacturing revenues around that are stable in the U.K., with some growth in support and also from ES in U.S., the electronic warfare side, where you've got some retrofit capabilities. So I think that sort of, broadly speaking, explains the U.S. programs. And then on cash flow, Brad, do you want to take that one? Yeah, just to point out, just on the air sector, I mean, overall air sector grew by 7%. So I mean, we're seeing really pretty good growth from the sector as a whole in air. And the question on cash flow, I mean, again, I'll just point you back to our guidance for the full year. Again, we're expecting free cash flow to exceed GBP 1.5 billion. So across the group, we're seeing good conversion, and we're also making sure that we're investing. We do see an increase in CapEx this year. And so that free cash flow is after that strong investment that we're making to improve the efficiency of what we're delivering. But yeah, I think the GBP 1.5 billion for this year, and again, that means GBP 6 billion outturn for the three-year period that concludes this year. So really strong cash delivery going forward. We expect strong cash conversion to continue. Yes, Brad, but my point was more on the HQ cash burn in the first half of 2024. Is that something that will recur in the second half, or will it reverse? How do I think about the seasonality there? Yeah, I wouldn't get carried away with the movements within HQ. I think just draw your attention to the total guidance that we're giving. And it's all included in what we've guided. So I wouldn't get too forensic at HQ level. Okay. Thank you. Your next question is from Chloé Lemarié at Jefferies. Chloé, your line is open. Please go ahead. Yes, good morning. Thank you for taking my question. I'd have two, if I may. The first one is on the U.K. defense strategic review. There's obviously been a lot of comments in the press around this. So maybe, Charles, you could give your personal view of what this means and any potential area, or you could see a risk, or maybe even potential improvements. And in the meantime, until the review is complete, what happens to decision on long-term strategic programs like GCAP? And the second one is on Ball. If you could provide some insight on the first learning from the integration, anything that surprised you positively or negatively since you took over the business. Thank you. On the strategic review, and we've been through quite a few strategic reviews over the years, and observers will note that every time there's a strategic review call, there is an awful lot of speculation in the press and lots of commentary as to various pros and cons of military capabilities. So I think it just doesn't add much to speculate at this stage. What I would say is you've got some highly respected people nominated, Lord Robertson in particular, and General Barrons and Fiona, all named as part of the review, and they're highly respected individuals who are going to take the review very seriously. I think that we've got a very strong suite of capabilities in the U.K., and there are very strong arguments for all of those capabilities. And I think the government has been clear that they want to see defense and investment in defense as part of or one of the economic growth drivers. We see that within our business, but I think that as that plays into an industrial strategy, I think that that is very encouraging to hear and something that I think that we're keen to help them with. All of our big programs, while generating very important military capability for the U.K., are also associated with them large numbers of jobs, high-quality jobs, long-term jobs. We're one of the UK's largest apprentice employers now. So there's a very strong prosperity argument in addition to increasing military capability. And I think we have a government that is very alive to that. And they've also said, and I think to the last part of your question, what happens to long-term decisions in the meantime, I think what they've said is, given the elevated threat environment, that the program should continue as this review takes place, i.e., there's no pause on any activities because we can ill afford to stop any of our key programs. So obviously, the review will play out, as the government has said, with the early first half of next year. It will be published. But in the meantime, everything continues as normal. With respect to SMS, I think since we have Tom here, I'll maybe hand over to you to say a few words on that topic. Yes, thank you, Charles. And good morning, Chloé. Yes, we refer to the former Ball Aerospace now as Space and Mission Systems, and that the integration is going very, very well. I think, in general, a focus around synergies. And if I were to name a place where things are, we're seeing some pleasant surprises, that's around as we bring the businesses together, particularly our Electronic Systems sector and Space and Mission Systems, and especially once we've been able to cross-clear the people in those businesses, meaning have our security clearances aligned to give us better insight into what goes on in both businesses on the classified side, there were pleasant surprises there. And we think that bodes well for additional top-line synergies as we get out into the medium term. As I think I mentioned in the presentation this morning, we're already starting to bid programs together across those businesses, and we anticipate doing more of that in the future. And here we are, just five months in. Cross-synergy is progressing also well, probably a bit ahead of plan. I mean, we're seeing the buying power of BAE Systems with our global long-term supply agreements being very well aligned with the needs of this new business. And so I think just across the board, really pleased with the way things are going. As we also reported, good accretive group margins at 11%, cash in line with plan, and backlog growth to the tune of about $900 million. And so off and running. Thanks for the question. Thank you. And I also wanted to say thanks for Martin for all the leads. Thanks. Thank you, Chloé. Please stand by for your next question. Next question comes from Ben Heelan at Bank of America. Please go ahead. Yes, good morning, guys. Thank you for the question. Yeah, thank you, Martin, for all of the help over the years. It's been much appreciated. I wanted to follow up again on SMS because obviously, it was weak in the first half. You've kind of addressed that. I think in the prepared remarks, Tom, you talked about a 10% sequential improvement in H2 versus H1. I was just wondering if you could give us some levels of conviction and if there's any risks around that as you see it. Also the order momentum in the first half of the year looked pretty incredible in SMS. Is there something particular driving that? Is that the level of order momentum that we should be thinking about for the first half of the year and going forward? How should we be thinking about that? Thank you. Yes, thank you, Ben. Good morning. So on the first point, I mean, I think as we look at the continuing resolution-driven delay that we saw in the first half of the year, this just happened to be in alignment of the plan. It's around programs that were due to be issued in that period of time. And by virtue of the funding delay, ended up pushing out. And so while now those programs have started, we named a few this morning around the NASA NOAA programs, those three hyperspectral instruments totaling at $1.3 billion in orders, those are now underway. And so what we would have in the original plan, those would have happened late last year. And so that's the phenomenon, right? It's this sort of alignment of those program starts. You point out, as we mentioned, the 10% second half versus first half we're expecting. And then as we get into next year, we are on track for that continued double-digit growth. And again, the backlog is just really good evidence of that. I mean, the business is performing well. There are no systemic issues underlying that performance. This is just delays in orders and program starts that just happened to be bundled together here this first half. Thanks, guys. Thank you. Hopefully. Your next question is being prepared. Please stand by. The next question is from David Perry at JP Morgan. Please go ahead. Yes, good morning, Charles, Brad, and Tom. And I will just add my own thanks to you, Martin. I look forward to working with you at QinetiQ. I guess my question is probably for Tom. Tom, since you last spoke to us, which I guess was on the full-year call, the big development in the U.S. was the supplemental budget being approved, which was quite significant. I just wondered if you could talk a little bit about the opportunities for BAE. Do you expect anything could come through this year? Will it take a bit longer? And what sort of things do you expect to come through qualitatively? And then maybe just for you, Brad, I guess linked to that, I guess what you've told us today is the organic growth this year is probably going to be 8%. I think the guidance back in February was 5%-7%, so let's say 2% better. I mean, is it skewed to a particular division, or is it fairly broad-based? Thank you. Supplemental first, yeah. Very good Hi, good morning, David. So the supplemental, I think, will play out in a number of different ways. Probably first and foremost, you'll see it in combat vehicles as we provide additional backfill to the donations that have been made over into Ukraine. In fact, this morning, you saw an announcement for about a $275 million M109 order. We're also seeing uptick on Bradley Fighting Vehicles. We're seeing additional AMPVs, Armored Multi-Purpose Vehicles that are backfilling for the no longer in production M113s that we're doing. And so that's an area that we've been watching and that will benefit from the supplemental. And then clearly, munitions-related programs. You'll have seen an order where we won the $8.8 billion 10-year program to continue to manage the Holston Army Ammunition facility. We think the supplemental will play into facility modernization projects here over time, right, as the army looks to bring what is somewhat dated parts of that facility into the 21st century. Munitions, we're also in the munitions supply chain in the new SMS business. And so we'll see, I think the supplemental will play into some backfill of munitions orders with the highly sophisticated aperture work that SMS does. Now, I think in general, timing associated, if you're a prime like we are in combat vehicles, those orders will come through more quickly. If we're further down the supply chain as we are with munitions apertures, that'll take a little bit longer. But I think those are the areas we'll see that impact. I hope that's helpful. Very good. Then I'll turn to Brad to say a little more on our broad-based organic growth. Yeah, morning, David. So all of our sectors are really posting results or expected outturn results that are higher than original guidance, with the exception of Cyber & Intelligence, which is in range with our guidance. So it's pretty broad-based, the organic expectations above original guidance. And I think where we're seeing a little bit of a skew is Platforms and Services coming in quite a bit higher than what our guidance was, and Maritime also. So those are the two sectors that are probably skewing a little bit. But every single sector is above our original guidance range, except for Cyber & Intelligence, which is within guidance range. So yeah, pretty broad-based. If I can just sort of follow up and tie the two questions together. I think last year's organic growth for the year was 9%. This year, I think it's going to be about 8% based on your guidance. You've talked about 5%-7% being the trend. But given what Thomas just said, I mean, the supplemental looks very, very significant. I mean, is 5%-7% on the cautious side in the near term, do you think? Well, David, we are not going to be giving multi-year guidance at the mid-year point. We're going to look at that very carefully as the second half progresses and we go through the IBP reviews, Integrated Business Planning review cycle, and we'll be updating you as normal as part of our preliminary results. But there's really strong structural support for continued medium-term growth. Good momentum in the business, which you see coming through. Understood. Can only try. Thank you. Thank you. We have one more question in the queue currently. As a reminder, if you wish to ask a question, please press star one one on your telephone. The next question is from Christophe Menard at Deutsche Bank. Please go ahead. Yes, good morning. Thank you for taking my question. Also congrats to Martin Cooper for the job done and all the help provided to us in the last years. Three quick questions on my side. First one is on the guidance, the new FY guidance. Thanks for this. My understanding is it's based on relatively prudent assumptions on the U.K. and U.S. budgets. It may refer to the previous question, by the way. I mean, what could make it better in terms of the guidance? Is it precisely supplemental, or where is the prudence, I would say? The second question is on the pace of the buyback. You rightly pointed out that the three-year buyback has completed in two years. You've started the new one. Do you intend to stick to a three-year buyback, or could it accelerate as well? The last question is on your fighters. My understanding is that you may be preparing for a surge in new orders in the coming months, let's say. How do you prepare industrially for this? What does it mean in terms of CapEx, in terms of your ability to deliver and to ramp up production rapidly across the supply chain? Thank you very much. So when it comes to guidance, and I'll maybe hand over to either Brad or Tom to add to this. I mean, I think when it comes to upside, a lot depends on just the pace at which some of these programs that are in the backlog or associated with supplemental actually do come through in sales. And we have historically been quite prudent around that. But if some of them come through faster, based largely on military need, I mean, we may see some upside there. Other than anything else, do you want to add either of you two to that? No, I think that's awesome. On the pace of the buyback, Brad, do you want to say something on that? Yeah, we have a GBP 500 million program that we just commenced. It's a three-year program. We've always said that on average, you can expect to see GBP 500 million a year in that. But we are following a very consistent capital allocation policy, as you know, Christophe, which starts first with investing in business. Maybe to your last question about building capacity to deliver the growth, you're seeing that already in the higher CapEx we've got this year. We have expectations for continued higher CapEx over depreciation over the medium term. That's, of course, all incorporated in our three-year cash guide. So we are building for growth, and we're building for efficient delivery. That will all help the overall performance of the business. But after investing in the business, Charles mentioned that we've increased our supplemental R&D in double digits. And that had about a 10 basis point impact on margin. But that's a good kind of investment that we like to grow the business and protect the long-term viability of the business. And then we're investing in our people. And we've seen the investment in the skills academies that we're building. And the one for shipbuilding just opened up yesterday in Glasgow. So investing in all of the internal parts of our business is first and foremost. And then we get to the dividend. And we've seen us once again increase our dividend by 8%. And we've used our balance sheet to make value-creative acquisitions. And we've talked a lot about the impact of those today. And then finally, if there's anything left over, that buyback program is there to use that surplus cash. Since we started these programs back in 2021, we've taken over 8% of our market cap out through these programs. They've been very, very successful. We continue to look for the impact of this in our capital allocation program. But as and when surplus cash allows. And then on Eurofighter, I think in terms of current orders and potential orders, I think you're absolutely right. There is a potential the Eurofighter production rate will have to increase. I mean, still not decided yet. But I'd remind everyone on the call that we're currently at quite low levels compared to the peak of European production of circa 60 airframes a year. We're significantly below that. So the actual infrastructure in terms of jigs and manufacturing footprint is there to do that. However, what you would have to do, what we will have to do collectively is add people and train people up associated with that manufacturing. So I think it's less of a CapEx requirement and more of a clarity around that long-term demand signal and getting the people trained enough to learning curve. Thank you very much. Thank you. Thank you. We have no further questions. I'll hand back to Charles for closing remarks. Very good. Well, thank you, everybody, for joining. And whilst we still have Martin for the rest of the day, I'm sure you'll have some further questions and pop them in his direction. But we're also, with Barry and Jen, very ably supported to handle questions in the medium term. Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.