BAE Systems plc

Operator: Good day, and thank you for standing by. Welcome to the BAE Systems 2025 Preliminary Results Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Paul Checketts. Please go ahead. Paul Checketts: Welcome to BAE Systems 2025 Full Year Results. I'm Paul Checketts, Director of Investor Relations. And with me, I have Charles Woodburn, our Group Chief Executive; Tom Arseneault, Chief Executive Officer of BAE Systems, Inc.; and Brad Greve, our Chief Financial Officer. Charles, over to you. Charles Woodburn: Hello, everyone, and thank you for joining us this morning. Before we begin, I want to thank our employees, trade unions and supply chain partners for the tireless work they do to ensure we deliver on our commitments to our customers. Delivering reliably on our mission to protect those who protect us is vitally important given the increased threats to security around the world. There are 3 key messages I'd like to leave you with today. First, 2025 was another year of strong performance. We delivered solid growth in revenue, profit, earnings per share and order intake and once again, cash flow was high. Second, the breadth of our business across air, land, sea, cyber and space and across multiple geographies puts us in an exceptionally strong position for both current and future opportunities in defense. And third, we are confident in the future growth we can deliver and the duration of that growth. We delivered strong outcomes in 2025. Sales and EBIT both grew at double-digit rates. Cash generation was high, and we secured GBP 37 billion of new order intake, demonstrating strong demand for our products. Our order backlog increased to a new record of GBP 84 billion, around 3x our annual sales. At the same time as focusing on delivery today, we're preparing for our future. Part of this is investing in research and development and CapEx. Our collective spending on these in 2025 was our highest ever. These results extend the track record we've built over multiple years of strong financial and operational performance and demonstrate our value compounding model in action. If we step back and look at our performance over the last 5 years, the story is compelling. At constant currency, our sales are up more than 50%. That's around 8% compound growth each year. We've also steadily expanded our margins, adding around 100 basis points or roughly 20 basis points a year. And because of that, our EBIT has grown even faster than sales, up by more than 60%. Earnings per share have been even stronger, increasing by over 70%, which equates to a 12% compound growth rate. Importantly, we continue to convert earnings into cash at a very high level. Across these 5 years, we've generated more than GBP 11 billion of free cash flow. And that cash gives us real strategic flexibility. It's allowed us to reinvest in the business to support further organic growth and to make targeted value-enhancing acquisitions. It's also supported increasing shareholder returns with dividends per share growth at around 9% a year. So overall, we're delivering strongly and consistently across the key financial metrics, and we see a very clear path for further progress. Our business has an outstanding geographic footprint. We have established positions in some of the largest defense markets in the world. This gives us an excellent breadth of opportunity and reduces the risk and volatility that comes with being more concentrated. Across all our key regions, defense spending is increasing because of the growing threats to national security. In each of our markets, the work we've done to invest in and position our business means our existing proven portfolio of capabilities aligns well to customer priorities. We'll look at Europe and the U.S. in more depth shortly. Here in the U.K., the government has committed to the largest sustained increase in defense spending since the end of the cold war. The U.K. Strategic Defense Review set out its vision for defense to move to greater warfighting readiness and to act as an engine of U.K. economic growth. It committed to invest in both our long-term programs and new disruptive technologies. We formed a new joint venture with industrial partners in Japan and Italy to design and develop the next-generation combat aircraft under the Global Combat Air Program, or GCAP. More broadly, Japan is on a path to double its defense spending by 2027, and we're exploring how we can support the country in other areas of defense capability. Australia is also increasing its defense spending. We're already the largest defense contractor in Australia and through the Hunter class frigate program and SSN-AUKUS, where we'll deliver state-of-the-art nuclear-powered submarines, we expect strong long-term growth. The geopolitical situation in the Middle East is likely to drive higher defense spending in the region. The largest defense market there is the Kingdom of Saudi Arabia, where we have a 60-year track record of partnership. Their 2026 military budget is expected to increase by 5% and areas of long-term focus include combat aircraft, missile defense systems, naval vessels and further increasing the localization of defense spend. Across the globe, our growth opportunities are significant, and we're focused on consistently executing our long-term strategy to deliver strong top line growth, margin expansion and cash generation. Over the past 12 months, there have been 3 consistent themes that have come up in our discussions with investors. First is our exposure to Europe, considering the rising threat posed by Russia, which is now driving increased defense expenditures in the region. The second is our shareholding in MBDA, given the growing significance of this business as Europe's preeminent manufacturer of missile systems. The third is the evolution of modern warfare and why we feel so confident in the continued and indeed increasing relevance of our portfolio, particularly in the light of new opportunities such as Golden Dome. As a result, we wanted to spend a few minutes focusing on each of these areas in turn, bringing Tom in to cover our U.S. business. The last year has seen a profound change in Europe security situation with the continent facing an acute and growing threat. In response, most countries are now significantly increasing the amount they spend on defense, underpinned by their commitment to meet NATO's target by 2035 of 3.5% of GDP being spent annually on core defense requirements and 5% in total. We're one of the leading defense companies in Europe, and our business is going from strength to strength. When you look across the continent, our equipment and services are integral to the defense of more than 25 countries. We have great capabilities across multiple areas, including combat air, land vehicles and missile systems. Growth for us in Europe is higher than the overall group. And at the same time, our order backlog has increased materially, now representing 32% of our total compared with 11% of our current annual sales in this region. To support our customers as they look to rebuild defense readiness, we're investing to support increased capacity, efficiencies and enhanced capabilities. An excellent example of our critical role in the defense of Europe, both today and in the future, is MBDA. As a reminder, MBDA provides sovereign capabilities to Europe and is a shining example of European defense collaboration. It's a joint venture between BAE Systems, Airbus and Leonardo with our shareholding totaling 37.5%. MBDA is a world leader in missile systems and the #1 player in Europe. Their portfolio has excellent breadth with products in service with more than 90 armed forces around the world. When you look at the critical areas where Europe and its allies are looking to rapidly improve defense readiness, MBDA has proven products. Areas of strength include air dominance since MBDA provides weapons for more than 10 different combat aircraft, including Typhoon, Rafale, Gripen and KF21. In air defense, they have capabilities across land and sea, including counterdrone, short-range air defense and medium range, including antiballistic missile threats. For longer ranges, they have a complete array of deep strike precision products, all of which makes MBDA extremely well positioned to benefit from increased defense spending as European and other nations focus on growing their weapons capabilities and inventories. You can see the high demand for MBDA's products and their momentum since 2021. Since Russia invaded Ukraine, order intake has stepped up from a cadence of around EUR 4 billion per year to EUR 13 billion. The order backlog has increased by 150% to EUR 44 billion or 7.5x annual revenue. And over that 4-year period, revenue has increased by 37%, a compound average growth of 8% to EUR 5.8 billion with improving momentum in recent years. MBDA is investing to fulfill orders and support customers' urgent needs. Significant funds are already committed over the medium term. They're renewing sites, accelerating digitalization, significantly increasing production capacity, investing in their supply chain and developing new products and technology. The combination of investing in the business, the high order backlog and the alignment of the portfolio with customer needs mean MBDA is positioned for continued strong revenue growth in the coming years. I'll now hand over to Tom, who will explain why we are confident about the outlook for our business in the U.S. Tom Arseneault: Thank you, Charles. Across the U.S. business, our strong performance in 2025 reflects our continuing efforts to align our portfolio strategy with evolving U.S. government defense and intelligence priorities. This enables us to support a broad range of programs and deliver for our customers with speed and at scale. We remain well positioned in areas the U.S. administration is clearly focused on. National security space and missile defense capabilities will play critical roles in the Golden Dome architecture, and we support a number of the key mission solutions, which underpin it. For example, as a result of emerging demand for the Terminal High Altitude Area Defense or THAAD interceptor, we expect a fourfold increase in production of our THAAD Seeker over the life of the 7-year contract. Our critical electronics and sophisticated apertures will also factor into the production ramps of other key munitions such as the long-range anti-ship missile or LRASM. Production of these additional key munitions will at least double in the coming years. Our teams are also rapidly developing and delivering cost-effective counter-UAS capabilities. Last year, we were awarded a new 5-year IDIQ contract worth up to $1.7 billion from the U.S. Navy to produce additional APKWS kits. This precision munition is combat proven for both surface-to-air and air-to-air engagements against hostile drones. And our platforms and services team has expanded its maritime business, allowing us to apply our highly skilled workforce and industrial capacity to contribute to the U.S. submarine and surface ship industrial base in addition to ongoing ship repair and modernization support for the U.S. Navy and commercial customers. While we have been investing in capacity and innovation for many years, the current market environment and long-term demand signals present additional opportunity. Since 2020, the businesses across our U.S. portfolio have invested more than $4 billion to expand production capacity and advance our research and development to deliver growth. To further support that growth, our workforce has increased by nearly 14%, and we've expanded our footprint by more than 2 million square feet. While there has been considerable focus on supporting the record production rates associated with key munitions demand, we have also been leveraging investments in a number of other important areas. In our Electronic Systems business, we have been investing to modernize and expand our microelectronics center to triple our production capacity for critical electronic components, supporting electronic warfare and other applications. Our Space and Mission Systems team has invested to develop Elevation, a new series of cost-effective modular spacecraft that will deliver world-class reliability and performance. An Elevation spacecraft has already been selected for the $1.2 billion resilient missile warning and tracking program we won last year. Supported by previous investments in combat vehicle manufacturing and robotic welding, we anticipate more than doubling our vehicle production compared to 2024 levels. In the maritime domain, our new state-of-the-art Shiplift in Jacksonville, Florida is now operational and will increase the capacity of that shipyard threefold. These are but a few examples of our investments in capacity and key technologies to support growth and ensure we deliver to our customers at speed and at scale. With that, Charles, I'll hand it back over to you. Charles Woodburn: Thanks, Tom. Technology and innovation sit right at the heart of our strategy and have done for many years. In 2025, we took that commitment further, increasing our self-funded research and development to a new record level. Let's look at how we develop the next generation of defense capabilities and our competitive advantages in technology. Areas of the defense market are developing at a rapid pace. Technology is being embraced and a number of companies are competing, including new entrants who often don't come from a purely defense background. This includes in drones, counter-drone systems and autonomy more generally. While it's a competitive market, solving the complex problems involved in producing equipment that works in a warfighting domain is extremely difficult. We bring together an understanding of our customers' operational needs with an understanding of the operating environment, agile software capability, differentiated hardware and an ability to successfully integrate the various elements rapidly and crucially the capability to scale up production quickly. I'll give you some examples to bring this to life. First, our platforms and products are deployed on the battlefield today, which gives us firsthand understanding of our customers' operating environments in real time. For example, our Callen-Lenz drones have proven themselves to be resilient and capable in extremely contested electronic warfare environments, and we take all these learnings into other products across our portfolio. A second highlight is our agile software capability. We are actively using generative AI to allow drones to understand the commander's intent and then configure their own software to best deliver that mission need. And we wrap these capabilities within well-understood assurance methodologies, which means the drones are only able to operate within the parameters set by their human operators. This enables rapid introduction of new behavior models and allows the drone to perform missions that were not originally envisaged. Next, consider our differentiated hardware. While software can define the optimal tactics for deploying artillery, being able to implement these tactics still requires a platform. Our mobile artillery system, ARCHER, can deploy fire 4 rounds and leave the location before the first round has reached its target. Now to integration. Bringing together the APKWS precision guiding munition from our U.S. business, heavy lift quadcopter technology from our Malloy acquisition and expertise in weapons integration from FalconWorks, a major step was achieved when we successfully used the drone to shoot down another drone. In just 4 months, we moved from concept to successful live firing trials. Finally, our APKWS technology more generally is a great example of how we can scale up quickly. It has brought down the cost of counter drone technology by so much that it's similar to the cost of the drones it targets. We've now produced over 100,000 units in total. And by the end of this year, we anticipate more than doubling our production rate compared to 2024. Our combination of established multi-domain expertise, decades of delivery and agile software capability gives us an advantage that many of our competitors simply can't match. It provides our customers trusted, differentiated solutions that have proven to work on the battlefield, and these provide us with a competitive advantage. And now over to Brad for the financials. Bradley Greve: Thanks, Charles. It's been a really strong year for the business. We delivered a record year in sales for the group with a 10% increase while building our backlog to an all-time high of GBP 84 billion. Our focus on efficient delivery contributed to a 12% increase in underlying EBIT, and we posted a double-digit increase as well in earnings per share. Free cash flow at GBP 2.2 billion was above our guidance with the benefit of strong delivery and material customer advances. This free cash was after double-digit increases in R&D and continued high levels of capital expenditure. And after all of these increased internal investments, we returned GBP 1.5 billion to shareholders, in line with our disciplined capital allocation policy. All of these numbers highlight the health and effectiveness of our value compounding model. I'll now break these results down in more detail. And as usual, when comparing results to prior periods, I will use a constant currency basis. With orders of GBP 37 billion, the book-to-bill was 1.2 and reflected the continued relevance of our broad technical and geographical reach. Key orders in the year featured close to GBP 9 billion in electronic systems orders. This included GBP 2 billion from our space business, featuring the missile warning and tracking satellite systems for the U.S. Space Force. GBP 6 billion in our P&S business, including significant orders in Europe for Hägglunds and Bofors and over GBP 2 billion for U.S. combat vehicles. The air sector recorded GBP 15 billion, including the Typhoon win in Turkey and GBP 4.2 billion in MBDA. Our Maritime business recorded GBP 5 billion of orders, including increased funding for submarines. And finally, the Cyber and Intelligence sector recorded a further GBP 2.7 billion. Our record backlog, together with the pipeline of incumbencies sets us up well for continued growth over the medium term. We grew sales by 10% to reach GBP 30.7 billion with growth across all sectors. Organic growth was 9%. Platforms & Services led the group with a 17% increase, hitting GBP 5 billion for the year. European growth in Hägglunds and Bofors was over 30%, while our U.S. combat vehicle business grew by 15%. Maritime continued to grow in double digits, up 11% to GBP 6.8 billion, with strong growth in design work for the SSN-AUKUS submarine and double-digit growth in Australia. The air sector rose by 9% to reach GBP 9.3 billion with 17% growth in MBDA, GCAP ramp and continued growth in drone sales and FalconWorks. Electronic Systems sales rose by 8%, paced by double-digit gains in EW sales, strong contributions from our precision strike and sensing activities and the full year contribution from the space business. Finally, Cyber and Intelligence was up 2%, predominantly on gains in counter-drone sales. Group EBIT of GBP 3.3 billion was up 12%, and our margin of 10.8% represented 20 basis points of expansion. This means over the last 5 years, we have delivered 100 basis points of expansion. The largest gain in EBIT came from P&S with 30% growth to reach GBP 576 million. Margin climbed to 110 basis points to 11.4%, with accretion on higher full rate production volumes from AMPV and growth in our European businesses. Electronic Systems EBIT rose by 12%, with margins growing by 50 basis points to 15.4%, including a strong contribution from SMS. The air sector EBIT grew by 10% with margins of 11.9% at the high end of our guidance range. Maritime margins reflected the early-stage maturity of the portfolio with several first-in-class programs trading at relatively low margins. We expect margins to improve in 2026 and beyond as these programs mature and as key milestones are achieved, allowing for risk release. Cyber and Intelligence EBIT was up 15% with a full year of Kirintec included. Organic growth for the sector was 10%. The group delivered operating cash flow of GBP 2.8 billion, significantly higher than our expectations as large customer advances were received very late in the year. With close to GBP 1 billion of CapEx, we once again invested at levels substantially higher than depreciation with capacity expansion and efficiency investments across the portfolio. There was a reduction in net advanced inflows in 2025 compared with 2024 in P&S and Air, which is the primary driver for the reduction in operating cash flow. Our free cash flow after netting tax and finance costs was GBP 2.2 billion. The strong performance contributed to a 22% reduction in net debt, which landed at GBP 3.8 billion. Excluding lease liabilities, the net debt to EBITDA was 0.9x. Our strong balance sheet provides excellent optionality to support our growth ambitions, and it was good to see this month's rating upgrade from Moody's, taking us up to A3. Turning now to guidance. We anticipate another strong year of sales with a 7% to 9% growth range, supported by the record backlog. Strong sales in air and continued growth in Europe for P&S should drive both sectors up in the 9% to 11% range, while growth in space and EW should drive growth in ES in the 6% to 8% range. Growth in maritime and cyber are expected to be in mid-single digits. EBIT should grow above sales with more margin expansion expected. Our guidance is for a 9% to 11% growth in profitability across the group. Earnings per share should grow in line with EBIT at 9% to 11% despite a higher tax rate anticipated in 2026. Regarding free cash, we do not include material advance receipts in our guidance. As you have seen in 2025, this can result in large positive variances. But given the difficulty in predicting these, we exclude them from guidance. We do include the anticipated unwind of existing advances. For 2026, we expect free cash flow to exceed GBP 1.3 billion, reflecting advanced unwinds and continued high levels of CapEx investment planned. So with the strong 2025 delivered, our guidance for 2026 demonstrates our confidence in the continued high performance of our business across all key measures. I'd like to discuss the 3-year cash delivery in a little bit more detail. Our consistency in hitting our 3-year guides continued in 2025, where we recorded GBP 7.3 billion over these last 3 years. For the next 3-year period covering '26 to '28, the target we are setting today is to exceed GBP 6 billion, including an assumed unwind of advances and high levels of investment to support growth. I'll end my section of the presentation with a quick reminder of our consistent value-creating capital allocation model. The first rung on our ladder is investing in the business, specifically in our people, facilities and technology. From the skills academies we opened to our commitment to early careers programs and a constant focus on building strong teams and leaders, investment in our people is essential to delivering our strategy. We have invested over GBP 1 billion since 2020 on education and skills. Our investments in CapEx to increase the efficiency in how we deliver to our customers as well as expanding the capacity of what we deliver continues to be maintained at very high levels, helping us to drive growth. Our investments in CapEx are over GBP 4 billion since 2020 and are now averaging close to GBP 1 billion a year. And our higher investments in self-funded R&D help to increase differentiation and open new revenue streams. These investments have increased by 70% since 2020 and programs like the APKWS illustrate how these convert to value. The second rung of the ladder is our dividend, which is covered approximately 2x by underlying earnings. Our dividends have increased for 22 consecutive years. And today, we have announced a 10% increase for our full year 2025 dividend. While maintaining our strong balance sheet with a focus on preserving investment grading, we have strong optionality to use M&A to grow the portfolio as we have done successfully over the last several years with over GBP 6 billion invested since 2020. And finally, when there is surplus cash after all of these allocations, buying back our shares has proven to be another important way we return cash to our shareholders, and we have retired 9% of our ordinary share count since the program started in the summer of 2021. So handing over to Charles with a final comment that our value compounding model has led to a high compound annual growth rate in both sales and underlying EBIT over the last several years, significantly enabled by this consistent approach in the allocation of capital. Over this time, we have also converted cash at very high levels. With our record backlog and pipeline, we are very well positioned for continued strong delivery across the medium term. Over to you, Charles. Charles Woodburn: Thanks, Brad. Looking ahead, we're well positioned to keep building on our momentum. A key strength of BAE Systems is not just our near-term growth, but the visibility we have over the long term. Our order backlog and incumbent program positions total around GBP 260 billion, nearly 9x our annual sales. This includes both shorter-cycle products such as drones, counter-drones and munitions, where we're currently experiencing high growth but also critical multi-decade programs such as frigates and submarines with long-term embedded value. Some of our biggest programs like the Global Combat Air program and SSN-AUKUS submarines don't come into full production until the mid-2030s and beyond. The combination of our order backlog, incumbent positions and a strong new business opportunity pipeline due to rising defense spending gives us the visibility and confidence that we can deliver strong growth for an extended period. Bringing this all together, what should it mean for investors? The combination of our exceptional breadth of world-class defense products and capabilities, strong positions in some of the largest defense markets in the world, a continued focus on execution while increasing our investments in technology and innovation and a large backlog of long-term work with significant new business opportunities means we're confident we can deliver strong revenue growth that is both visible and sustainable over multiple years with higher margins and strong cash generation, all of which will be amplified by our disciplined capital allocation, giving us enhanced visibility on our value compounding model. Many thanks. And with that, we're ready for your questions. Operator: [Operator Instructions] And now we'll go and take our first question and it comes from the line of Ross Law from Morgan Stanley. Ross Law: The first is just on the U.S. budget and the potential upside there for fiscal '27. Are you actually planning for a GBP 1.5 trillion (sic) GBP 1.5 billion scenario? And when would this increase flow through to your P&L? Second question, just on Europe. You highlighted that it's 11% of sales, but 32% of the backlog. And what do you expect the mix of European sales contribution to trend to midterm, please? And then lastly, just on MBDA, how should I think for the growth outlook there in terms of CAGR? Charles Woodburn: The first one, U.S. budget upside. Tom, do you want to take that one? Tom Arseneault: Yes, sure. I think we're very encouraged by the trajectory of the budget. I mean how that -- how the 2027 top line ends up remains to be seen, but it certainly is heading in the right direction. It is not part of our current guidance. And so we do see upside in there. And to the extent we've worked to align ourselves well with the National Defense strategy and various priorities that fall out of that, I think we are well positioned. The Golden Dome, for example, we talk about the recent wins in the base layer and our involvement in the interceptors, FAD and others. And so I think you'll see some of the budget applied there as well as shipbuilding. We've recently pivoted some of our maritime solutions to be the better part, as I mentioned earlier, of the shipbuilding, the submarine and surface ship industrial base. And so I think we are well positioned to the extent that budget heads in that direction, we're all encouraged by that. Charles Woodburn: So on the European composition, I mean, clearly, it's going to grow quite significantly with that 11% European ex U.K. in our current sales and 32% in the order backlog. Quite what the final number ends up being, I think it's a bit hard to tell a lot depends back on things like U.S. budgets as to the rate at which they grow, the relative rate of other areas. So I think it's a bit hard to judge, but we are looking at significant growth over the next 5 years as we build out that backlog. On MBDA, Brad I mean we've had already a pretty rapid growth. I think it was 17% year-on-year growth last year to the year before. But do you want to comment a little bit on the outlook for that business? Bradley Greve: Yes, I'll just echo too, on Europe. We -- GBP 3.6 billion of sales in Europe in 2025. That is against GBP 2.8 billion in 2024. So you can already see how our European revenue growth is really accelerating. And actually, our European business is bigger than our KSA business now. So I think that's worth reflecting on and positioned for continued growth. I think MBDA has been a really strong 2025 with over 17% growth. And Charles laid out some of that backlog that they've got. So sometimes revenue there can be a bit choppy because it's point on delivery revenue recognition. So some of that revenue growth may not be even. But with that backlog they've got, we expect really continued high levels of growth for a long time to come here. And also, Charles mentioned the production capacity investments that they're making, that will allow us to accelerate growth over the medium term once those get online. So I think all of this points to a really strong outlook for MBDA on the back of what's already on a pretty strong run for that business. Operator: And the question comes from the line of Robert Stallard from Vertical Research. Robert Stallard: I've got a couple for you this morning. First of all, this might be for Tom and Charles. Given the broader industry trends, are you expecting much higher CapEx in your U.S. business going forward? And in relation to that, are there any limits you potentially see on your flexibility on returning cash to shareholders? And then secondly, you highlighted the growth potential in MBDA and the rapid growth you've seen already. We've seen one of your peers in the U.S. announcing plans to spin a minority stake in its missile business. Is there any chance of a similar move for MBDA? Charles Woodburn: I think on the MBDA, I think we're very happy with the business. We don't see any particular need to change the structure or the holding system at the moment. We're just pleased to see the performance and keep supporting it. On CapEx, I'll maybe leave that to both of you, Brad and Tom to say a couple of words on it. But I would come back to the fact that we have because of the good performance of the business, ample capacity to invest as we have been at record levels. If we needed to increase, we can still do it and still maintain our very disciplined capital allocation strategy. But if you want to just say a couple of words on U.S. in particular CapEx growth, maybe... Tom Arseneault: Rob. So in the U.S., I mean, clearly, we're focused on -- and as we've all been encouraged by the executive order to make sure we are positioning and applying our capital resources in a way to help grow capacity and focus in areas of technology investments, some of which I mentioned earlier. We are on the verge. We're part of the FAD program. We do the -- we make the interceptor. We anticipate signing our own head of agreement with the Department of War here in the coming weeks in order to secure that quadrupling of demand over the 7-year multiyear program. As part of that, we would look to invest appropriately and it's quite a bit easier to close the business case on a multiyear demand like that, but to ensure that we can produce at that level. So that's just one very near-term example. But we continue to focus and make sure we're applying our resources to the benefit of the Department of War and their priorities. CapEx will generally impact to you. Bradley Greve: Yes. At a higher level, Rob, we -- as we've laid out in the scripts in the prepared remarks today, you've seen us talk about a lot more investment. And over the last 3 years, we've been averaging sort of GBP 1 billion a year. I would expect in the next 3, it's likely to go up as we see this increasing growth environment that we're in. And a lot of that, as Tom has laid out, is in the U.S. But overall, this is embedded in our 3-year cash guide where we said we're going to have 6 -- over GBP 6 billion in the next 3 years of free cash. That is reflective of higher CapEx investments. Operator: And now we're going to take our next question from the line of David Perry from JPMorgan. David Perry: Two questions. First one, just an update on AUKUS, please. I think the last few days, there's been quite a lot of press reporting out of Australia that the government there is about to commit AUD 30 billion to a new production facility. So just any info you have on that? And then secondly for Tom, I think one of the surprises for me in the results was U.S. land vehicles, where both sales and margin were better than expected, because that's a business that you've been less bullish on recently. Have you changed your view on that? And any thoughts on the outlook? I mean, could there be more margin upside from where you are at the moment? Charles Woodburn: Thanks, David. So on AUKUS, I think as you already alluded to, there was some announcements over the weekend about infrastructure investments in the Osborne precinct around for the long-term build of SSN AUKUS, which I think is excellent progress and just underlines the strength of the program longer term. From a U.K. perspective as well has been continued investments in the design work that's going on the SSN AUKUS submarine. So I think whilst we've always said this is a long-cycle program, much of it doesn't really bear fruit until well into the 2030s. These are early days, laying the -- literally the foundations for the success of the program. And I think we're making good progress on that. On U.S. land vehicles, I think Tom, as you said, is best place to answer that one. Tom Arseneault: Yes. Thank you, Charles. And David, yes, no, thank you for pointing that out. I mean I think the team and Platforms & Services has done an excellent job playing out the backlog that we've been reporting in recent years. And programs like the amphibious combat vehicle, for example, which is a Marine Corps program, factors well into the Pacific deterrent dimension of the National Defense Strategy an important vehicle for Marine Corps as well as the armored multipurpose vehicle, AMPV, which is the highest volume vehicle running through the factories there. Some of the -- and the margin improvement, excellent performance, coupled with some of the investments we've made in recent years, robotic welding, et cetera, that helped drive a little bit of automation, allowing for better throughput in some of those higher markets. And so we continue to focus on delivering for our customer and ensuring that we can return to the shareholders at the same time. I won't point out, I mean, we do -- our combat vehicle portfolio also includes the business in Hägglunds in Sweden, and that business is growing quite strongly. We are -- it was in the press late last year, working on a 6 nation agreement for CV90s. That will likely result in orders for additional vehicles in the hundreds. The 6 nations, Finland, Sweden, Norway, the Netherlands, Lithuania and Estonia, and the team is working with all 6 nations now in order to hammer out an agreement for a common vehicle platform across those nations. I hope that's helpful. Charles Woodburn: Which I might say is a great example of European partnership. Operator: Now we're going to take our next question and it comes in of Christophe Menard from Deutsche Bank. Christophe Menard: I had 3. The first one is still on the U.S. Can you comment on the drive for affordability in the U.S.? How -- and does it impact you? Is it in technology programs or in -- for instance, I don't know, the Radford rebid that's coming up? Second question is on capital allocation, share buyback. The GBP 1.5 trillion (sic) [GBP 1.5 billion] is coming to an end, I think, around June. What are the clients plans beyond? And the last one is on order intake. I'm still -- I'm always surprised -- I mean, always very positively surprised by your order intake. Any guidance for 2026 of book-to-bill or any key orders we should be watching in terms of influencing the order intake in '26? Charles Woodburn: Well, Christophe. So drive for affordability, I will let Tom say a few words on that, but we are fully supportive of the intent of the executive order to improve production rates and make sure that we deliver on the programs. Capital allocation, I may correct you there, is GBP 1.5 billion, not GBP 1.5 trillion. And -- but I'll hand over to Brad to do that one. And then order intake guidance, as you know, we don't guide on order intake. They tend to be quite lumpy. But if Brad, as you're answering capital allocation, do you want to expand on that by all means do. So maybe, Tom, over to you on the drive for affordability. Tom Arseneault: Yes. No, that's a great question. Thank you, Christophe. We -- the focus on affordability is highly enabled by volume production, right? And so some of these investments in capacity, I mentioned robotic welding a little bit earlier, brings automation to bear, drives for the economies of scale and economies of labor and automation that allow us to create a more affordable situation. Investments in technology around how we're driving, for example, as I mentioned earlier, the microelectronics position, right? As the microelectronics get denser and denser, we're able to get more capability into smaller space, drive down the material -- the builds of material on some of these items and again, helps with affordability. So we're looking at it in every dimension from the way we work all the way through to the technology we apply. I hope that's helpful. Charles Woodburn: Brad, do you want to talk about capital allocation? Bradley Greve: Yes. I think it's healthy just going to look back to our capital allocation hierarchy again. And the first rung in that ladder, as we said, was investment in the business. And so this takes the shape and investment in our people, the GBP 1 billion that we spent over the last several years on skills academies and early careers programs, self-funded R&D. We've been making meaningful increases in those investments and CapEx. We've talked a lot in this presentation about how much we're increasing our investments there in CapEx. And all of this, I think, is very much aligned to a growing business and a growing backdrop. And our customers all want capability faster and our investments are designed to do that. So that is our very first priority, and that's completely aligned with our customers' view on this. And after that, of course, we have a dividend policy that's very established and clear covered 2x by underlying earnings. And we've then looked at M&A as sort of another wrong and using a strong balance sheet to increase and enhance our portfolio. And finally, if there's cash left over after all of this, that's when the buyback program kicks in. And we're in a situation with the business that across all these increases of internal investments and dividends and the M&A we've been doing, we still have had cash left over. And so I think that's been a useful tool to deploy that surplus cash. Charles Woodburn: Then on order intake guidance, as I said, we don't give guidance, but Tom alluded to, for example, more CV90 potential orders translating. The Type 26 selection by the Norwegians is not yet in order backlog. We've got a number of additional opportunities for Eurofighter, both support and new aircraft sales. Electronic systems, there's opportunities with Compass Call. I mean there's a wide hopper of opportunities. But as you always know, the -- some of these big programs, quite what year they fall from an order intake perspective can be a little hard to predict, which is why we are cautious around giving specific guidance on that. Christophe Menard: And yes, indeed it was GBP 1.5 billion. Charles Woodburn: I was joking to be honest, Christophe, I knew you have -- anyway, thank you, Christophe. Operator: The question comes from the line of Ian Douglas-Pennant from UBS. Ian Douglas-Pennant: I have 3, at least one of which is quite quick. Firstly, on the free cash flow. So your free cash flow guidance 2025, '27 implies GBP 2 billion of free cash flow in 2027, which is a decline on what we've seen recently. Like can you talk about why that's the case beyond -- and obviously, I hear what you're saying on the advanced payments, but anything else beyond that, we should be considering? Secondly, could you talk about the outlook for tax rates? I think your communication there has changed? And thirdly, on the Eurofighter, can you talk about the long-term production rate plans there given some of the recent demand we've seen coming in? And related to that, could you talk about progress on FCAS and when you now think that will be ready for use for our customers? Charles Woodburn: So maybe the first couple for you there, Brad, free cash flow and... Bradley Greve: Free cash flow, really the story on the variability is not a new story. It's just really down to how advances move and how we guide on the basis of a conservative outlook on advances where we always model the burn of advances. And in 2026, we expect to have a circa GBP 600 million burn down of advances. We haven't guided to any material advanced receipts. So to the extent those come in, that would be upside to what we've guided. And that also is true of the forward guidance ranges in those 3-year increments that we've outlined. So none of those include material receipts for new advances, but all of those new ranges looking ahead include burn down. So that -- I think that's really the simple explanation of your question on that one. And on tax rates, we did see an increase, we're expecting to increase rather in 2026, and that's mainly coming from '25. We did have some prior year releases from some retired tax issues. Those obviously don't recur in '26. And the France tax regime has carried forward what was meant to be a 1-year surplus and tax rates. They've now taken those into a second year. So the France tax rate is 36% compared to what we expect it to be sort of in the mid-20s. So I think I really explains the tax movements and a 22% guidance for ETR for '26, that's probably a range that's likely to endure for a little bit longer. Charles Woodburn: Thanks, Brad. On Eurofighter, I mean, we've talked before about sort of the pathway to doubling production rates, and I think we're well on that. Having secured Turkey and there are other opportunities. I mean, obviously, some European buys that you're well aware of. We'll look to adjust that. But I think that we said at the time at the Capital Markets Day last year that it was sort of a couple of year trajectory to get to the new production rates, and we're well on that journey. And we will adjust, if needed, upwards if we are successful in securing further orders. And of course, the good news is that we now have production requirements all the way through to when we start doing final assembly of a GCAP capability, which is important. And I think to your final question, GCAP is making really good progress. We have a really strong team, moving well and are delighted with the partnership that we have and moving at pace. Operator: And now we're going to take our next question. And the question comes from the line of Olivier Brochet from Rothschild & Co. Olivier Brochet: I would have a couple of things to ask. The first one is on the operating cash flow in H2, it doubled in electronic system. Do you have any areas that you would like to point to explain the move? On the same vein, did you have any cash payment catch-up on the F-35 after the release from inventory aircraft last year? And the second question would be on the space exposure. Can you maybe size how big it is across the group, maybe in terms of backlog and sales as you very hopefully did for the European business? Charles Woodburn: On cash OCF, do you want to do that, Brad, and then maybe over to you for space, Tom? Bradley Greve: I'll simply say, Olivier, we tend to have a very back weighted cash flow profile. So '25 is no exception to that. We did see some advances come through in our space business from SMS into the ES cash flow. So that was a contributing factor in that. But we always have a very H2-weighted cash profile, and that continued into 2025. Tom? Tom Arseneault: Yes. I think I mean backlogs in the former Ball Aerospace, now our Space & Mission Systems business are at record levels. I mean, after some delay in the early part of the year as the administration was settling in and working through its priorities, there were some pivots on their part early in the year. Although as we moved to the half and beyond, we spoke at the half, and I mentioned earlier, the big win on missile warning and tracking. We won a ground systems award called FORGE C2 that will -- is a ground systems for this missile warning and tracking kind of mission in our national and military space businesses grew and won a number of other programs. And so record levels. I think Brad, just check me if I'm wrong, GBP 8-ish billion for SMS. And so a really good performance there, and 1 that will play out through sales growth here. We're projecting double-digit sales growth in 2026. Operator: We're going to take our next question and it comes from the line of Alessandro Pozzi from Mediobanca. Alessandro Pozzi: The first one is referring to your opening remarks about the outlook, very strong pipeline as well. I was wondering, can we have any color on the medium-term growth? A lot of your peers have given 2030 targets. We don't guide to 2030. But I was wondering, is it the right time maybe to factor in an acceleration in top line and maybe growth of double digit rather than high single digit, also in line of defense spending in the U.S. going up? And the second question on the GCAP. There's a lot of speculation that Germany and France may not go ahead with the FCAS any longer. Would you be able to accommodate Airbus as a new partner in the GCAP and what the implication could have for the program? And maybe a last one. Any update on the Eurofighter potential opportunity in Saudi Arabia? And any thoughts on that? Charles Woodburn: So outlook, thanks for the question, Alessandro. We don't, as you know, give medium-term outlook, but we've been on a strong temper of growth, and we do see that continuing. As you probably are aware, everyone on this call much debate around the U.K., for example, and the defense investment plan and will there be more funding around that. And I don't know any more to add to that other than has been in the press already. But none of that is in a sense, assumptions around that further upside would be in our guidance and indeed -- but it would affect our medium-term outlook, but we just have to wait and see how that plays through. So there is further upside, we think, to the medium-term outlook, depending on how things play through. And indeed, as Tom alluded to already, with the U.S. budgets as we see how that plays through, but that's not a '26 impact. That would be a '27, '28 and beyond impact. On GCAP, I mean, really the decisions around expanding the partnership are entirely down to the 3 governments of Italy, Japan and the U.K. that are partners already. So there's not really not much more I can comment on that apart from the fact that we have a really strong partnership that is making great progress and moving at pace. And on Eurofighter, again, there's a little I can really add apart from we have a large portfolio of additional opportunities for the Eurofighter platform. It's a superb fighter aircraft. And with the latest missile systems from MBDA has extremely good capabilities. So we do see a range of additional opportunities, both from existing customers and new customers as we see with like Turkey coming into the Eurofighter family. That's really all I can say at this point. Operator: And the question comes from the line of Sam Burgess from Goldman Sachs. Samuel Burgess: Three, if I may. Firstly, just back on Europe. If there is movement in the rules on U.K. company participation in future European defense funds, just in big picture terms, how material could this be for BAE Systems? Secondly, can you give us just any directional indication of the expected magnitude of advanced payments expected in 2026 relative to '25? I mean given quite a lot fell in Q4 '25, might we assume it's a slightly slower year in terms of prepayments? And then thirdly, maybe one for Tom. Just following on from Ross' question about potential U.S. budget increases. I know there's been a lot of kind of CapEx going in for Jacksonville and Louisville, but that was obviously in advance of some of the latest messaging from the U.S. President on budget. So what's your sense on the areas that incremental budget spend may be directed? And might you need to accelerate CapEx to capture some of that demand if it's not in your base case? Charles Woodburn: Thanks. Good set of questions. On Europe, I would just come back to -- we already have -- we're well positioned within Europe. So our position with MBDA, Eurofighter, our Swedish businesses mean that we are very well positioned, and we can happily partner with companies like PGZ in Poland, who are recipients. So for example, say funding we can work with them. So we see, as you've already seen in our order outlook, we're expecting significant growth in Europe, and it's a combination of selling in from our U.K. business, but very importantly, strongly enhanced by our footprint already within the Europe and specifically EU. So -- and then in terms of advanced payments, I mean, we don't guide around that. It's very hard to predict, which is why we specifically exclude them from our cash guidance. And I think that's probably the prudent place to be. And I think we're very clear around our position there. Tom areas for CapEx -- in the U.S., do you want to say a little bit about that? Tom Arseneault: Yes. I'm happy to it. Thank you for the question, Sam. I mean if I had to point to one area and again, as I mentioned earlier, we're very encouraged by the administration's move toward multiyear contracts, particularly in and around munitions. So if you look at the 2026 National Defense Authorization Act, the budget has outlined, particularly Section 804, that really outlined these multiyear procurements where they create effectively 7 years of demand for some of these munitions. Our 8-ish munitions sort of called out there as key munitions. We play a role on 6 of those. FAD I mentioned earlier has one. And so as we look to the sorts of volume increases associated with those anywhere from doubling in production to quadrupling there will definitely be some CapEx expected in those areas across the portfolio. By the way, that's both ES and SMS, those 2 businesses will contribute. So I'd call that out as probably the dominant area, although there would be others. Operator: We're going to take our next question comes the line of Chloe Lemarie from Jefferies. Chloe Lemarie: I have a first question, please, on the 2026 to '28 cash outlook. You helpfully said the GBP 600 million advances burn in '26. Could you maybe share how much over the total period you're factoring in for this? The second question is on P&S. Obviously, quite a strong performance in '25. We touched on the U.S. platform performance. But I think a 30% growth in both for Hägglunds was mentioned. So could you maybe touch on capacity utilization now in those businesses and the expansion phasing going forward? Charles Woodburn: Over to you, Brad, for cash guidance and then, Tom, for the excellent performance in P&S. Bradley Greve: Yes. I think the GBP 600 million burn down is probably a fair average to use across the medium term. So the '26 to '28 cash guide. Again, we don't assume any advances coming in, so any prepayments coming in. We do have a slightly higher CapEx across the next 3 years and then there's the normal working capital movements, but we will have higher profits, which will fall to cash. So all that weighted in is kind of what colors in that GBP 6 billion -- greater than GBP 6 billion cash guide over the next 3 years. I mean it's going to be timing on programs that will dictate the cash burn on advances. It may not be evenly distributed GBP 600 million each year. But I wouldn't be surprised if it's a number like that over the next 3. Tom Arseneault: Yes. And then on Adrien (sic) [Chloe], on vehicle performance and production. I mean P&S, again, thank you for highlighting that a really excellent performance on the part of that business. Remember, P&S includes both the U.S. portfolio as well as Hägglunds and Bofors in Sweden. We expect that we would focus -- again, we don't see additional capacity necessary in the U.S., for example, we are -- we have built that up over the course of the last 5 or 6 years. And so now we're sort of running at rate, focusing on good performance there and that you can see in the bottom line in that business. So over in Hägglunds, I mentioned earlier, the 6-nation opportunity that would likely require some additional CapEx in Sweden, but we do, as we've reported in the past, spread that capacity work out into the countries to which those vehicles would be delivered and in industrial cooperation. And so a modest investment there, we expect. But here's a business that was maybe 50 vehicles a year, only a handful of years ago, now looking at maybe somewhere between 200, 300 vehicles a year. So really good opportunity there, and business has done well to scale. I hope that is helpful. Operator: We'll go and take our next question and it comes from the line of Adrien Rabier from Bernstein. Adrien Rabier: I also have 2, please. Sorry to ask again about the U.S. budget, but if you don't ask -- if you don't mind me asking in a more basic manner, if we have anywhere near 50% growth in U.S. budget in 2027, what would that mean for you? How much you expect to participate? And how long will it take to flow into your P&L? And the second question on your 2026 guidance, please. Your sales growth target implies some sequential slowdown from 2025. But as you said, budgets are growing in your key regions and backlog is great and you've been expanding capacity. So should we see this as a reasonable caution? Or is there a reason to actually expect a slowdown this year? Charles Woodburn: Well, on the second one, the answer is no. But do you want to explain that a little bit guidance? You're saying it's slowing down compared to this year. But Bradley Greve: On top line? Charles Woodburn: Yes, on top line. Bradley Greve: Yes. The growth that we printed for 2025, the 10% included a full year of SMS, our space business, former Ball Aerospace. So that compares to a partial year in 2024. If you look at our organic growth rate in 2025, it was 9%. So again, if you put that in the context of our go-forward guidance, where we're saying 7% to 9% for 2026, we're continuing to grow at these very high levels on a higher 2025 base. So hopefully, that helps you understand a little bit that we're continuing to grow in pretty high levels here. Charles Woodburn: Yes, we still see strong momentum in the business. And maybe over to you, Tom, on U.S. budgets. Tom Arseneault: So there is so much that has to play out here before we understand where the top line for 2027 will settle. I mean it's -- again, we're very encouraged by the directionality of the discussions around the budget. You'd have to imagine that the way that would translate into portfolios would be sort of relative to how well aligned we are around the demand signals. And we feel very well aligned, as I mentioned earlier. And so we would hope we would get a reasonably proportionate share. The focus on the national defense strategy, deterrence in the Pacific, our electronic warfare, our space portfolio, the work we're doing to help with the submarine and shipbuilding industrial base. When it comes to defend the Homeland, we spoke about Golden Dome, Clearly, the space and the munitions side of that, Counter-UAS, with our APKWS solution. So we've worked to align as best as we can with the national defense strategy. I think that's paying dividends for us, and we would hope to earn our fair share of that budget when it settles out. Charles Woodburn: But this would really play out in '28, '29. Tom Arseneault: Right. It will be some time before we know exactly where that is, but the directionality is clearly encouraging. Operator: And the next question comes from the line of George Mcwhirter from Berenberg. George Mcwhirter: Maybe on R&D, going back to the comments that Charles you made about self-funded R&D reaching a record high this year. Do you expect self-funded R&D to continue to account for the minority of R&D? Or could you see that the self-funded share grows a bit faster than customer funded as government shift to a greater company, that innovation to reduce the time it takes for products to come to market? That's the first question. Charles Woodburn: Okay. Is that the only question? Or do you want to ask... George Mcwhirter: Sure, I can ask the second one. Maybe on margins. You talked about 20 basis points of margin expansion a year for the past 5 years. Do you think this is a reasonable level that you can achieve in the next 5 years? Charles Woodburn: So on margins, I'll let you answer that one, Brad. On R&D, I mean, as you said, we have been increasing self-funded R&D. The most intensive area of self-funded R&D is the electronic systems portfolio in the U.S., and that's been really good investments, things like APKWS is -- was a self-funded R&D program that is now doing extremely well and a huge commercial success for us. So we are encouraged to keep investing in R&D. The balance between that and customer-funded R&D, I mean, it largely depends as well as to the amount that we get through customer funding on R&D programs. So I'm not sure it's going to change dramatically, but we will keep investing in self-funded R&D. We've had some great success there. The other area that we've invested and continue to invest heavily in self-funded R&D is in the U.K. air sector, specifically around drones, counter drones some of those capabilities is making sure that we really build out that what is already a market-leading portfolio and develop that further. On margins and the margin progression, do you want to say a bit about that, Brad? Bradley Greve: Yes. Last several years, our mantra here has been top line growth, margin expansion and cash conversion. And we were pleased to generate those 100 basis points of expansion over the last 5 years. And when we look forward, we'll continue to focus on these things. And where we have opportunity for more improvement is really everywhere. Operational efficiency is a key lever of expansion. The extent that we deliver our programs and retire risk to the bottom line rather than consume it. That's a really important part of how we're going to grow margins from here. We'll have some operating leverage with top line growth, where we can keep indirect costs flat. That's another key lever. And our supply chain function continues to make size our scale advantage so we can get procurement volumes to drop down into bottom line margin expansion. I mean across the entire business, we look at these margin levers to really drive improved delivery, and we've seen that over the last several years. Now looking at where we're going to go from here and where you're going to expect more margins. Obviously, the maritime sector is one that is below the range that we expect from that sector. And so I would look at that sector as being the one that will drive the biggest gains over the next 3 years. But we're already pretty top range and a lot of our delivery across the sector. We look at ES at 15.4% and P&S at 11.4%. There's still room to go on those. So I wouldn't just extrapolate a 20 basis point a year over the next 5 years to come, but we certainly are focused on it. And we continue to think that we can drive margins up from already these high levels in 2025. Operator: And the next question comes from the line of Nick Cunningham from Agency Partners. Nick Cunningham: Yes, so the -- a few details on the U.S... Charles Woodburn: Yes, we can hear you, Nick. Nick Cunningham: Can you hear me? Charles Woodburn: We hear you loud and clear. We are hearing you. Nick Cunningham: So the administration is Good. So the U.S. administration is not very happy about NOAA and NASA budget. And it's obviously engaged in a big fight with Congress. But in the meantime, it's been holding out signing checks. And is that an issue for BAE? Or are you assuming that those delayed payments will get caught up later in the year? And also, of course, will it be more than offset by the growth in military space anyway? Secondly, on the P&S shipbuilding move, is this into something new like building modules? Or is it more of the surface ships fit out that you did in earlier years? And how big could it get? And then a final high-level question for Brad. Debt reduction wasn't mentioned as an option in capital allocation. Some of your U.S. peers are looking at retiring debt instead of buybacks. And in that context, what is the right level of debt? Charles Woodburn: Okay. So Tom, I mean, you already alluded to the pivot early in the year from civil space to military and where you think that's going. So I think you maybe say a bit on that and also the shipbuilding and maybe the pivot to submarines. Tom Arseneault: All right, Nick. What was the first one again? Charles Woodburn: The question was about civil space -- [ NASA ]. Tom Arseneault: Yes. No, you're right. And that has played out a bit in the press of late. -- our current trajectory is depending only on the contracts that we have in hand. There is potential upside in this debate around NASA NOAA priorities. But you are exactly right, and that is our -- the growth we've seen has really been driven by military and national space. And that backlog I mentioned earlier, was built around that. And so to the extent the NASA NOAA debate settles in the direction we would like and that is to reinstitute some of the capability in like the GeoXO that program, for example, that would be beneficial to us. But our focus has been on ensuring we're well positioned to deliver on that military and national space. And then second question around shipbuilding. And here, let me be very clear. We are not intending to build full ships, and we had gotten ourselves in trouble in the middle of the last decade or so off on a commercial shipbuilding venture. That is not our intent here. We are contributing components and working to earn our way in to be a reliable supplier. We do the Virginia payload module, for example, for the Virginia class submarines today. We're looking to expand on some of that work. But we are just trying to be a good, healthy and reliable supplier in this submarine and shipbuilding industrial base but in the supply chain. I hope that's clear. Charles Woodburn: Would you, Brad, on the sort of debt reduction and debt levels? Bradley Greve: Yes. We're not looking at doing any accelerated reductions in our debt. We're already at 0.9x net debt to EBITDA. So pretty healthy balance sheet. And I do believe that constructive debt can help grow the business. And that's what we've done with the acquisitions of Ball Aerospace. And I'm really comfortable with where we are with the balance sheet, and that gives us really strong optionality, which really is what you want as a business. So we don't have any plans to accelerate any early maturities of debt. Charles Woodburn: Thanks very much, Nick. So I think over to you, Ben, for the last question. Operator: And now we're going to take our last question for today. And it comes from the line of Benjamin Heelan from Bank of America. Benjamin Heelan: Thank you for holding it for me. So the first question I had was on M&A, Charles, can you talk about the M&A pipeline? It feels as though buyback has been somewhat kind of deemphasized the potential to kind of grow that medium term, a lot of focus on CapEx, a lot of focus on self-funded R&D. But how are you seeing M&A within that? And if you could talk about the pipeline, how are you thinking about where you want to deploy capital geographically technology-wise, over the next couple of years? That would be great. And then the second question, I guess one for Tom. If I look at Electronic Solutions, I would have -- I would have assumed it would have grown a little bit better organically in '25 than the 5%. And when I look at the guide, the '26, the 6% to 8%, I kind of feel it would be more towards the top end and high single digit given the program mix that you have there. So first question on that, is there anything in there that is slower that we need to that we need to be thinking about? And then you've had a lot of questions on the budget in the U.S. I mean, obviously, we don't know what is going to happen. But I guess one way to ask it is, if you do see the budget moving to the kind of GBP 1.2 trillion to GBP 1.3 trillion range over the next couple of years, do you think the U.S. exposure that the BAE has will be able to outgrow that budget over the medium term? Is that what we should be thinking about? Charles Woodburn: M&A I'll take first. I mean really, it's much of similar focus areas as before, bolt-on opportunities adding to our Electronic Systems portfolio has been a good hunting ground for us in the past, and we'd continue if we found the right opportunities to look at that. Europe is presenting more opportunities given the growth rates there, although being careful and prudent with our valuations and making sure that we're not paying for opportunities -- we just announced our intention to move forward with an acquisition of a relatively small business in Sweden, which supplies barrels and castings to our Swedish businesses. I think will be a great addition to the portfolio. I've identified before Nordics as being an area that we'd be looking at. And then you'll have seen, and again, very much in the bolt-on category over the last couple of years, we've done some very interesting acquisitions in the drone and counterdrone space, things like Malloy, Callen-Lenz, Kirintec capabilities. And again, we'd look for those kind of opportunities to add to the portfolio. So very much in the bolt-on space and in the kind of areas that we've looked at in the past. ES growth, do you want to say a little bit more on that Tom? Tom Arseneault: Yes. Sure. So ES, as you know, it includes SMS, the Space & Mission Systems business. And as we were discussing a little bit earlier, we saw a slowing of growth in the Space & Missions Systems over what we had originally expected in 2025 driven by some of this uncertainty, some of the delays in the -- again, as the administration settled in and they work through their various priorities, we saw some decisions and awards being delayed through the year. And so that resulted in a little bit of lower ES growth overall at the reporting segment level. As mentioned earlier though, the wins that eventually came here in the latter part of 2025, position us for double-digit growth here in 2026 that backlog translates. And so really good growth that will recover in the coming year. And then the other question around budget growth. And again, here we are with our crystal ball trying to get a sense of whether what that trajectory, what the slope of that budget growth will be. Our strategy all along as we -- as we've said, is we are working to pivot and align our portfolio as accurately as we can with the demand signals of the Department of are where is that budget likely to be spent? It's in the areas we've mentioned munitions the Secretary that maybe came out the other day saying that with the higher budget, they could potentially double the shipbuilding budget for the Navy. Marine Corps and ACV, so an additional award there. So we've done quite a bit to get that alignment right. And so again, we would hope to earn our way into a proportional benefit from that growth when it comes. Thank you for the question, Ben. Charles Woodburn: I think that actually brings us to an end now on the questions. But thank you all for joining. I think I'll see many of you out on the road over the next couple of weeks and beyond. But thanks for joining and -- thanks for joining. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.