BAE Systems plc

Hello, everyone, and thank you for joining us this morning. I'm incredibly proud of the results we're reporting today and of the contributions our people have made to achieve another year of strong financial and operational performance as we continue to support our customers around the world. There are three areas I'd like to focus on today. First, our 2024 financial performance, where we've produced strong top line and earnings growth with better than expected cash flow and order intake. Second, The steps we've taken to continue shaping our portfolio to higher growth, technology focused and strategically important domains such as space, drones, counter drones and electronic warfare. And third, confidence in our outlook, which is driven by our record backlog, reflecting the sustainability of our value compounding business model. Taking a look at the broader backdrop, defense spending globally has continued to strengthen since this time last year, reflecting the elevated threat environment. Our programs and technologies across the group, including our electronic warfare and space capabilities, precision strike and tactical systems, AI, AUKUS, and the Global Combat Air Program, or GCAP, are delivering for our customers today and helping shape the future of defense capabilities. At the same time, we are improving the efficiency and agility of our own operations to succeed in an environment in which many of our government customers are seeking greater efficiency and affordability. In the US, we remain closely aligned to the US National Defence Strategy, which is largely focused on the Asia-Pacific threat environment, and we look forward to working with the new administration. In the UK, the ongoing Strategic Defence Review is set to conclude in the near future. The government has already signalled its intent to increase defence spending and we expect that our major UK programmes including submarines, Type 26 frigates, GCAP and others will continue to be well supported. Elsewhere in the world there is upward pressure on NATO defence budgets with discussions about increasing the 2% target in the years ahead. We also expect Australia, Japan and countries in the Middle East to significantly increase their spending on defence in the coming years. So our growth opportunities are significant and we remain focused on consistently executing our long-term strategy to deliver top-line growth, margin expansion, and solid cash generation. Our strong 2024 results continue the momentum we've built over successive years of solid financial and operational performance. Demand for our products remained strong, as reflected by our £34bn order intake, which propelled our total backlog to a new record of £78bn. This visibility supports our confidence in the growth outlook over the medium term. Our relentless focus on operational performance has enabled us to consistently convert our large order backlog into strong sales growth. We set a new record in 2024 of 28.3 billion pounds in sales, together with sustained margins and excellent cash flow, which was boosted by several advance payments on new contracts towards the end of the year. In 2025, we expect a similar organic growth trajectory, which Brad will cover in more detail. It's worth restating that our current order backlog is largely driven by our incumbent positions on existing long-term programs. It's widely understood that even when hostilities in Ukraine end, the threat environment in Europe, the Asia-Pacific and the Middle East will remain elevated, as will the need to replenish inventories. In 2024, we maintained a strong balance sheet, enabling the same disciplined capital allocation approach that we've taken for the past several years and we expect to continue in 2025. Our financial results and continued confidence in the outlook mean we're announcing a proposed final dividend of 20.6 pence per share, bringing the total dividend for the year to 33 pence, a 10% increase on last year and continuing our track record of over 20 years of consecutive dividend growth. Our order intake has significantly exceeded our sales over the past three years, with 2024's order flow driving our backlog to the new 78 billion pound record. Our sustained positions on our major long-term programs and expansion in space and drone capabilities, coupled with further progress on AUKUS and GCAP, have all added to our medium-term outlook. As a reminder, our combined order backlog and pipeline of opportunities from our positions on those long-term programs provides exceptional visibility of our medium-term sales growth. Looking more closely at our backlog and the global nature of our business, you can see we are positioned for strong growth this year and in the years ahead. This chart shows that many of our short- and medium-term growth drivers are already in our backlog, and we also benefit from incumbent positions on long-term programs, some of which are expected to endure for multiple decades. There is also ample scope for us to win new opportunities in these established lines of business. Our focus on agility, efficiency, and innovation mean there should be more opportunities in the defense technology space well suited for our innovation centers in the US, the UK, and Australia. With that in mind, I want to highlight some of the investments we're making in technology. We regularly engage with our customers to understand and anticipate their evolving requirements so that the capabilities we're developing are relevant now and will be critical in the future. To fuel our innovations, we are continuing to increase our self-funded R&D up 30% in 2024, focused on areas such as space, air, and subsea autonomous systems, counter drone, and quantum devices. In addition, we have carefully deployed capital to fund accretive acquisitions to evolve our portfolio and position ourselves as a leader in the markets of the future. Chief among them was the Ball Aerospace acquisition, which significantly expanded our presence in space. We also made smaller acquisitions of Molloy, CalenLens and KirinTech, strengthening our drone and counter drone capabilities. Bringing products forward from concept to deployment at pace has never been so important. This is one of the key lessons of the Ukraine conflict and is critical to addressing the increasingly complex threat environment. That's why we're investing in solutions that save time and costs while enabling greater agility for our business and our customers. This includes using digital transformation and advanced manufacturing techniques as we evolve the way we design, develop, manufacture, test, and upgrade our products and systems to meet this challenge. I'll wrap up by saying 2024 was another excellent year for the company. We made significant progress on two multinational strategic collaborations, AUKUS and GCAP. Early stage design work on SSN AUKUS is underway in the UK, and in Australia, we were selected alongside ASC to deliver the country's new fleet of nuclear-powered submarines. On GCAP, we reached agreement with our international partners in Japan and Italy to form a new joint venture, and we completed the Bull aerospace acquisition one year ago to form our new space and mission systems business. This progress was made while we continue to invest in the business through increased levels of CapEx and R&D to ensure we can execute our backlog with efficiency and develop our portfolio of cutting-edge technology. None of this would be possible without the amazing people who carry out the immense responsibilities of our mission to protect those who protect us. In 2024, we welcomed a large number of new employees to our team, including 5,200 people who joined us with the Ball Aerospace acquisition. Their collective knowledge, talent, and skills are already benefiting the company, and we're delighted to have them as part of the BAE Systems family. On that note, I'll now hand it over to Tom for an update on SMS. Over to you, Tom.

Thanks, Charles. I'm happy to spend a few minutes on our Space and Mission Systems business, or SMS, which is part of our electronic systems reporting segment. This is a very exciting business, and our integration teams have done a great job achieving key milestones, just as we'd planned through our first year. As we have come together, we have consistently seen that our cultures are very well aligned. We share a core belief in operating with efficiency, affordability, and speed to deliver the very best capabilities to our customers. This has been instrumental in our first year, and it will also position us to achieve even more going forward. starting with our 2024 performance. As we guided during our half-year results, SMS continued to deliver for our customers, and second half sales came in 10% higher than the first half. In fact, second half sales were 12% higher than the same period in 2023. The SMS in-year margin was strong at 11.7%, reflecting good underlying program performance and putting us ahead of our acquisition case. Cash was also well aligned with our expectations, and SMS backlog rose to $3.7 billion, up 25% over year-end 2023. With the transition year behind us, this strong backlog provides excellent visibility into our future sales growth. Overall, integration is proceeding very well. The bulk of our core business systems, including compensation, benefits, finance, and IT operations, transitioned as planned in September of last year. As expected, supply chain integration has been a key driver of cost synergies, along with numerous efficiencies achieved through our combined systems and operations. The collaborative work of the two businesses' supply chain teams has ensured a smooth transition of services, suppliers, and customers. The resulting synergies, driven by increased spend volume and efficiency gains, has confirmed our assumptions, and I'm really pleased with the progress in this area. As a result, we remain well on track to achieve our near-term objective of $30 million per year. In addition to cost synergies, we are also excited about opportunities to grow our top line over time. Since we announced the acquisition of Ball Aerospace, the teams have been working to bring our collective strengths to bear to address our customers' highest priorities in the most efficient and affordable manner possible. Our top line revenue work streams have focused on opportunities in space, electronic warfare, CNI, and support services. We're finding interesting ways to combine existing electronic systems technologies and payloads with SMS mission systems to position us for roles neither business would have pursued alone. The recently announced U.S. Iron Dome Initiative will likely yield such opportunities, as it will leverage space-based and precision technologies core to our sector strengths. Our positions on programs like THAAD and our technology offerings in advanced communications, sensors, and space-qualified electronics place us well for promising opportunities such as this. We just marked our first year of operations with Space and Mission Systems. As I reflect on our performance, I am extremely proud of how well the teams have worked to become one seamless and efficient organization and to create a foundation for sustained growth. Over to you, Brad.

Thanks, Tom. Before I get into the results and outlook, I'd like to thank our teams across the company who produced the strong numbers I'm about to present. The results reflect a familiar picture of a business that continues to grow by adding value for our customers and delivering strong returns for our shareholders. Our backlog is the driver for continued growth and strong visibility. And as you can see, this closed at a record 78 billion pounds on the back of another strong year of order intake. Our sales rose by 14%, taking our three-year compound annual growth to 10% over that period. Underlying EBIT grew by 14%, exceeding the 3 billion pound mark for the first time. Over the last three years, EBIT has grown more than 10% annually. We delivered 2.9 billion pounds of free cash flow in 2024 on the back of strong operating cash conversion and customer advances received late in the year. This number is net of £1 billion of capex as we continue to invest in our business to support the growth embedded in our order backlog and pipeline. We returned £1.5 billion to shareholders with a proposed 10% increase in the dividend, along with continued share repurchases. All of this means we ended the year with records for order backlog, sales, underlying EBIT, EPS, and dividend and we are well positioned for this operating and financial rhythm to carry on into 2025 and across the medium term. In the slides that follow, I will take you through some more of the details on the key metrics before moving to guidance and capital allocation. Order intake for the year was 34 billion pounds, expanding our backlog by 11% to a record 78 billion pounds, including the 3 billion pounds from SMS. Notable contract awards were booked for our space business CV90s, air defense for Eastern Europe with MBDA, typhoons for Italy and Spain, and the three-ship order for Australia's Hunter Class program. Sales of 28.3 billion pounds increased by 14%, including the results of SMS. Excluding the impact of all M&A in the year, the organic growth rate was 9%. Our electronic systems sector, including SMS, increased by 35% to 7.2 billion pounds. with an organic growth rate of 9%. As Tom mentioned earlier, SMS achieved double-digit growth in the second half of the year and is positioned for double-digit growth in 2025. ES also had strong growth in precision strike and sensing, which was up by 33%. Platforms and services sales grew by 15% to 4.4 billion pounds, with our U.S. combat vehicle business up 18%. Haglunds grew by 45% on European volumes, and Bofors grew at a similar pace, led by Archer sales. Overall, P&S delivered over 600 vehicles in 2024, compared with just over 500 in 2023. Their sector rose by 7% to £8.5 billion. Activity increased in MBDA and KSA, while the GCAP program continued to ramp up. The sector also posted growth in FalconWorks, where we are rapidly expanding our portfolio of drone capabilities. Maritime sales grew 12% to 6.2 billion pounds. Australia sales led the way on Hunter ramp-up, while the Type 26 and the subs portfolio in the UK continued to add to sector growth, along with munitions. The design work on the SSN AUKUS submarine made a material contribution to sector growth, more than doubling over last year, with another doubling expected over the next two years. Finally, cyber and intelligence sales grew by 6% to reach 2.4 billion pounds. INS in the U.S. was up by 7%, primarily on work for the U.S. Air Force. The digital intelligence business in the U.K. was up by 4%, largely on the growth in counter-drone sales from the newly acquired Curantech business, along with modest growth in national security cyber. EBIT of 3 billion and 15 million pounds was up 14.4%, and the return on sales of 10.6% was up by five basis points. Strong operational delivery and accretive benefits from recent acquisitions more than offset the mixed effects from continued high growth in the maritime sector. There was a 20 basis points impact from higher R&D investment, primarily in attractive margin accretive technology opportunities in electronic systems. The ES sector delivered 14.9% ROS, including the SMS business, which delivered a group accretive margin of 11.7%. P&S expanded margins by 110 basis points to reach 10.2%, supported by full-rate production volumes for AMPV, as well as growth from Haglunds and Bofors and improved operational delivery and ship repair. The Air sector maintained a strong 11.8% ROS, as EBIT exceeded the 1 billion pound threshold for the first time on higher sales volume. Maritime profit was up 12% in line with sales, and finally, cyber and intelligence margins of 8.3% were in line with guidance. The group delivered 3.1 billion pounds of operating cash flow, significantly above our expectations, with higher than anticipated customer advances received late in the year. We continued to allocate capital to protect and grow the business, with over 1 billion pounds in capital expenditures to drive growth, improve efficient delivery, and continue to modernize our footprint. Net debt ended the year at under 5 billion pounds. The business generated 2.5 billion pounds of free cash flow, and we returned 1.5 billion pounds in dividends and buybacks. The outflows for acquisitions of 4.6 billion pounds include the SMS transaction, Malloy, Callen-Lenz, and Kerantec net of divestments, After successfully financing these acquisitions, net debt to EBITDA finished at a healthy 1.3 excluding leases and 1.8 including leases. Turning next to guidance, building on the group's continued strong growth over recent years, we once again expect to see high single-digit growth on the top line at 7% to 9% and continued margin expansion EPS is expected to grow in line with EBIT at 8% to 10%, with a higher tax rate offset by share repurchases. Bearing in mind the acceleration of customer advances in late 2024, pre-cash flow should exceed 1.1 billion pounds. As a reminder, our cash guidance provides a baseline which excludes material customer advances. With this guidance, the average annual cash flow over 24 and 25 is more than 1.8 billion pounds per year, which outpaces our previous guidance. While we do not give medium-term guidance on sales and EBIT, the backlog and pipeline that Charles outlined earlier provide strong visibility for growth and positions as well to carry on this financial rhythm into the future. The strong cash delivery over the years is demonstrated here with the 2024 outturn of 2.5 billion pounds, taking the three-year total to over 7 billion pounds for the 22 to 24 period. The significant upside versus guidance comes from the receipt of material customer advances. And as mentioned previously, we continue to exclude material advances from our cash guidance. We are upgrading the in-flight cash guide for the three-year period ending in 2025 with our new target to exceed 6 billion pounds. I'm confident that we should be generating between 5 and 6 billion pounds in subsequent three-year periods with the variability coming from customer advances. Our 10% sales compound annual growth rate over the last three years, together with the growth implied in our backlog and pipeline, demonstrates that we are a growth company. Our increasing cash delivery fully supports our approach to capital allocation, which over these last several years has been very consistent. We prioritize investing in our people, our delivery infrastructure, and in promising technologies. We pay a dividend, which is covered around two times by earnings, and has grown significantly over the years. We are dynamic with our portfolio by acquiring high quality assets while divesting non-core activities. And we continue to use our buyback program to deploy surplus cash. We do all of this with a balance sheet that is managed within the parameters of an investment grade credit rating, providing us with the flexibility to execute our strategy. Before finishing, I would just like to spend a few moments highlighting our capital allocation and action over the past few years. as an example of what we expect to continue delivering. We will continue to prioritize investment in our talent as demonstrated by the growth in our skills academies and our early careers programs. Our sales per head has improved significantly over the last five years as our investments have contributed to more efficient workflows and modernized skill sets with more to come. Over this five-year period, we have invested over 2.9 billion pounds in CapEx modernizing facilities, improving our efficiency, and building capacity for growth. Examples of these include capacity expansion for Haglins, robotic welding in multiple sites, a new shiplift complex in Jacksonville, and the construction of a large-scale shipbuilding facility in Glasgow. These investments are giving us a more efficient infrastructure and a strong platform for growth. Meanwhile, our self-funded R&D has increased over the last five years, and we are successfully converting these investments into sales. I would point out programs such as APKWS in ES and the Tempest program in our air sector. Other examples include small form factor technology in ES, TagView, our AI route planning software, ILAS, our AI-driven intelligence tool, and our single synthetic training platform called Odyssey. These self-funded R&D programs have contributed multiple billions in sales since their launch. In terms of returns to shareholders, our track record on dividends is well established. After taking strong actions to de-risk the pension in 2020, which is now in surplus, we complemented our dividend policy with share buybacks, reducing our share count by over 8% since program launch in 2021. Finally, since 2020, we have taken a more dynamic approach to our portfolio, adding high-quality assets starting with the GPS business and building up to the SMS acquisition last year. Through this acquisition program, we have sought to build capabilities, strengthen differentiation, and increase our growth prospects and margin accretive areas, making a substantially positive impact to top-line growth and profitability. In fact, since 2020, our acquisitions have added over 3.3 billion pounds to group sales over that time and strengthened our position in promising growth areas like space, AI, and precision strike and sensing, all of which tightens our alignment to the national defense strategies of our customers. In summary, our approach to capital allocation in recent years has had a strong value compounding impact on our financial returns. Looking forward, our record backlog and pipeline amounting to over nine times current sales means that our business will continue to grow, and we have created more opportunity to continue compounding value into the future. Over to you, Charles. Thanks, Brad.