Well, good morning, everybody, and a very warm welcome to our preliminary results presentation. In a few moments you'll hear from Charles and Brad as to what I believe has been really an outstanding performance in another challenging year.

And as customary, of course, a Q&A will follow. Now as I'm sure many of you know, I will be stepping down as Chairman at our AGM, having served the full 9 years that the U.K.

corporate governance code permits. And I'll do so with some sadness, having enjoyed the role throughout.

And let me say I intend to do so until my last working day. But every day has been a privilege, a real privilege to work with some of the most talented people on the globe, all I think, united in the common and very worthy purpose of serving and protecting those that serve and protect us.

Of course, this year, the war in Ukraine has caused many to recalibrate their views on defense. The case for which is not just having the right equipment, but to invest in the industrial umbrella that will build skills, secure employment and provide prosperity whilst peace prevails.

Now as it is my last prelims, there are 5 points that I would like to make as to how this year's results have been achieved not just by hard work, but really built on fundamental changes within the company made over time under the leadership of Charles, Brad and Tom, and these will underpin and sustain our business model in the years ahead. As a company, our mantra is to be performance-driven and values led.

But primary shift that has been the catalyst for the performance improvement actually has been in our culture. First, the focus of the company is to place our global customers as an absolute priority to be a partner, not simply a supplier, leaning in to identify and develop the next level of requirement and going the extra mile to ensure we are both timely and cost competitive in satisfying today's needs and providing the thought leadership that is essential to the future.

Second, the ultra-additions of silo management have been breached. And talent now moves, I think, seamlessly between one area of the business and another.

And this transfers the knowledge, skills and mindsets and as a result, reenergizes the business and turbocharges the performance. We've witnessed this over the years, amongst others, in military air, submarine, shipbuilding, electronic systems to great effect, and it will continue to be a strength of this business as we go forward.

Third, the management has been de-led and the principle of if you are good enough, you are old enough has been widely adopted. It's rather than the emphasis on the time served as the primary qualification for promotion.

Now this has led to a rejuvenation of the leadership team and the strengthening of the talent bench such that the business is now driven by a very healthy mix of new useful expertise and seasoned experience with succession planning now at the very core of our thinking. Additionally and importantly, progress has been made in baking D&I into our DNA, such that we increasingly draw from the talent available from all sectors of the community to provide real opportunity for many talented people who may otherwise have been overlooked.

Over 1,000 apprentices last year, I think, a testament to this policy and indeed our success in people development. Fourth, we are committed to developing the next generation of capability and investing accordingly, whether in the air with Tempest underwater with Dreadnought on land with CV90 at sea with Type 26 and Hunter in our world-leading electronics and precision weapons technology and of growing importance in space and cyber with our investment in satellite capability and multi-domain communications.

It is these investments that ensure we do combine our ability to capitalize on the remarkable ingenuity and foresight of our predecessors whilst building a legacy of capability that those will undoubtedly follow us. Finally, the commitment of this team post COVID, now more than ever is to care for the security, prosperity and safety of all our stakeholders.

As seen in our relationships with colleagues, our partnerships with customers, our interactions with suppliers and our reward to shareholders. It is this management team that has driven improved program performance reflected in order book build sales growth in diverse regions, profit and margin improvement, significant cash generation and better capital allocation, which, in turn, has enabled us to offer a sustainable and rewarding relationship to all who work with us and 19 years of consecutive dividend growth with the addition of share buyback for those that invest in us.

My final comment is this. Corporately, we are in good order, the right people at the right time in the right place.

In the sector, we have one of the broadest spread of capabilities in both products and services and one of the widest geographic reach amongst all our competitors. Whilst there's always more to do, and there always is more to do, we are pleased that the strength of our position, both individually and comparatively, is increasingly recognized in our valuation and reflected, therefore, in our return to shareholders.

In a few weeks, I will leave in the belief that the business has come far but has much further to go. It's led by a team with the 5 ingredients, of which I value most: energy, ability, humility, agility and most important of all, integrity.

It is this powerful and winning combination that I believe is worthy of all of your support. I wish them Cressida Hogg, who takes over from me in May, the company and all of you here well in all of your endeavors.

And with that, I will hand over to Charles. Charles?

Thank you, Sir Roger. I know I speak for all of us in this room in saying that we sincerely appreciate all you've contributed to the company these past 9 years, and good morning, everyone.

When we came together for this event last year, Russia was beginning its horrific invasion of Ukraine. As we recognize the 1-year anniversary tomorrow, I would like to take this opportunity to acknowledge the extraordinary bravery, fortitude and resilience of the Ukrainian people in the ongoing conflict.

We're proud to work with our government customers as they continue to support Ukraine. In 2022, we stepped up and delivered mission-critical requirements for all our customers and effectively manage the supply chain resourcing and inflationary pressures throughout the year, reflecting our operational consistency and robust business model.

These strengths, coupled with our geographic diversity, underpinned another strong set of financial results announced today with growth in sales, profits and cash. Importantly, for the future, we booked a record year of order intake and significantly increased the backlog, positioning us for sustained top line growth, good cash generation and continued margin expansion.

It is worth noting that most of this order volume was driven by existing program positions prior to the Ukraine conflict. The real impact to orders will come further down the line.

Reflecting the growth outlook, we increased our investments in our people, technology and sights while still improving margins. At the same time, we further strengthened the balance sheet, had a positive conclusion to the U.K.

pension triennial review and delivered another successive year of increased shareholder returns through higher dividends and the multiyear buyback program. Reflecting this strong in-year performance and our confidence in the outlook for the group, we are today announcing a proposed 7.6% increase in the final dividend.

With the robust outlook, it is vital we're investing appropriately to meet the expectations of all our stakeholders. We've been increasing self-funded R&D, and we are planning further disciplined increases in the coming years.

We will be holding a technology-focused event later in the year and running a series of tech talks to highlight our leading technology credentials and their high relevance to our customers and their stated strategies. Building on the CapEx investments over recent years, we continue to improve our facilities and working environment to drive efficiency, support the growth outlook and provide an excellent employment proposition.

In 2022, we opened a number of new facilities in the U.S. and began work on a new shipbuilding hall in Glasgow.

We are continuing to invest in our people, especially in our early careers and outreach activities as we look to hire and retain the best talent with significant increases in apprentices and graduate numbers already announced. As we assist governments in delivering their mission-critical requirements in the face of escalating threats, the importance of our role in contributing to security and prosperity is clearer than it has been for many years.

We explained in detail last October the good progress we are making against our ESG agenda, and we've maintained our AA leadership MSCI rating. We are targeting those areas in which we have an opportunity to support our customers, make a difference and contribute to our global future, namely reducing our carbon footprint, ideas, innovation and technology, opportunities for people and communities and success through collaboration and partnering.

These align with the company's ESG strategic priorities and our core strengths and capabilities. As usual, we will dedicate a full session on our progress in the second half of the year.

I'm pleased that in 2022, we further enhanced our track record of operational and financial delivery and maintain the positive momentum behind the business evolution targets we laid out 2 years ago. We are delivering against these aspirations, which over the past 2 years has helped us deliver 10% sales growth, 90 basis points margin expansion and over GBP 2.7 billion in shareholder returns whilst also increasing our investment in the business.

Later in the presentation, Brad will explain why we are confident about the scope for further margin enhancement in the coming years and reiterate our strong cash generation expectations and balanced capital allocation policy. I will then recap on the key factors that give us confidence in delivering long-term sales growth.

Over to you, Brad.

Thanks, Charles. I'll start with the financial headlines and then cover results at the group level, moving to guidance, the strength of our operating model and margin drivers and wrap up with capital allocation.

The significant tailwind from the stronger dollar is reflected in our reported numbers. But as usual, my comments will be on a constant currency basis, which gives a better picture of underlying business performance.

Operationally, the business continues to deliver, and I think our teams for remarkable job they do. In my visits to our locations over this past year, I continue to be impressed by the commitment, expertise and passion of our people.

It's their efforts that have led to these strong results with sales, earnings and cash flow all above guidance. As you can see, it was a record year for orders at GBP 37 billion, with strong demand driving backlog to GBP 59 billion, demonstrating the growing momentum in the business.

We delivered top line sales growth of 4.4% and -- and while there were supply chain disruptions and inflation headwinds, the quality of program execution drove strong returns, resulting in a 5.5% EBIT growth and a 20 basis point expansion in return on sales, which reached 10.7%. Free cash flow approached GBP 2 billion, fueled in part by a very strong year-end orders and higher-than-expected advances from new awards.

While increasing our CapEx and self-funded R&D, we also returned increased cash to our shareholders. We're making excellent progress with our buyback program, which complements the recommended 7.6% increase in our full year dividend.

The detailed year-on-year financials are shown here. For reference, the dollar rate averaged $1.24 compared to $1.38 last year.

This has naturally had a tailwind effect on the reported numbers. Our strong operational performance and progress on the buyback resulted in underlying EPS of 55.5p, up 9% and above the top end of our guidance range.

The underlying tax rate for the year was 19%. On pension, the IAS 19 balance sheet position is in surplus compared with the deficit last year, driven predominantly by the move in corporate bond rates.

On a technical provisions basis, the U.K. schemes are fully funded.

I'll move now to our key group financials, starting with orders. We booked GBP 37 billion of new business, up GBP 16 billion over last year and well ahead of our expectations.

As Charles mentioned earlier, most of the order volume was driven by programs or bids already in progress before the Ukraine conflict. The anticipated impact of restocking and recapitalizing will come later as governments convert demand into firm orders, a factor which should contribute to a longer growth cycle for the industry.

By sector, our ES business delivered a book-to-bill of over 1 with key orders secured in precision strike and electronic warfare. P&S booked orders of GBP 5.7 billion, boosted by the CV90 award from Slovakia and the multi-country awards for the BvS10.

And air, the GBP 14 billion mark included the renewals of both the Saudi and U.K. Hawk support contracts, continued F-35 awards, the Spain Typhoon order and significant awards in MBDA.

Our maritime business booked nearly GBP 10 billion of orders led by Type 26, Batch 2 and Dreadnought funding. Our Cyber & Intelligence business posted a book-to-bill of 1.1, reflecting national security budget priorities.

Sales for the year came in ahead of guidance at GBP 23.3 billion, up 4.4%, emphasizing our geographic diversity as well as the depth and strength of our product and service portfolio. Maritime led the group, up nearly 10% with half of the increase coming from submarines and the remainder primarily from the Type 26 and Hunter build programs.

Sovereign intelligence maintained the first half momentum, posting a 7% increase for the full year with strong demand for our capabilities in both the U.S. and U.K., along with the benefit of our BISim acquisition in March.

Air was up 3.5%, led by the ramp up in the Tempest program. And ES, sales rose by nearly 2%, driven by growth in classified work, Compass Call and continued increases in F-35 EW activity.

This growth came despite the supply chain and resourcing challenges in the year. P&S was stable as expected, with an increase in combat vehicle revenues, offset by timing on ship repair contracts.

Profits continued to grow ahead of sales, up 5.5%, nearing GBP 2.5 billion with a return on sales at 10.7%, up 20 basis points on last year. This reflects our continued focus on margin expansion underpinned by operational excellence.

ES delivered another strong operational year at the higher end of the guidance range. P&S margins expanded by 120 basis points to the upper end of guidance on continued operational improvement in both ship repair and in combat vehicles, where nearly 500 vehicles were delivered in the year.

The air sector delivered an excellent year of operational performance with margins coming in at 11% as risk retirements were delivered over a number of programs. The maritime margin of 7.7% reflected the high volume of Dreadnought sales in the second half and increased self-funded R&D related to our autonomous and multidomain capabilities.

Sovereign intelligence margins expanded by 120 basis points to 10.5% as both I&S and DI delivered impressive program performance, high levels of utilization and effective cost management. Operating cash flow at GBP 2.6 billion was significantly ahead of expectations.

The outstanding conversion rates in P&S and air reflect higher-than-expected cash advances on new awards. These accelerated collections were the biggest driver of our overall cash outperformance as a group.

ES had conversions at 78%, slightly down from last year on increased investment and strategic inventory actions. Maritime's conversion was in line with expectations with the unwinding advances, while Cyber & Intelligence conversion was in line with expectations.

The change year-on-year in headquarters reflects the sale of the Filton and Broughton properties, which you may recall from 2021. To complete the cash analysis, the movement in net debt is broken out here, starting with the opening balance of GBP 2.2 billion.

The operating cash flow net of interest and tax resulted in free cash flow approaching GBP 2 billion. Shareholder returns totaled GBP 1.6 billion with all of the movements totaling around GBP 200 million, leading to an improvement in net debt, which closed at GBP 2 billion.

This strong cash agreement that we significantly beat our second rolling 3-year guide. We increased returns to shareholders, accelerated our investment in the business and maintained a strong balance sheet, all of which gives us good strategic and financial flexibility as we look forward.

Moving now to 2023 guidance. With a strong year behind us, we look forward to another year of top line growth, margin expansion and good cash delivery against our rolling targets, all reflected in our group guidance.

These figures use the same rate we averaged in 2022 of $1.24. We expect sales for the group to increase between 3% and 5%, with gains across all sectors, led by anticipated high growth in commercial activities within ES with more modest growth in air due to the maturity of Qatar programs.

We start 2023 with over 75% of sales already in the backlog. We expect EBIT to improve by 4% to 6% as we see scope for continued margin expansion, as I will touch on more shortly.

We expect underlying EPS to increase between 5% and 7% with the benefits of the buyback program, more than offsetting a higher expected tax rate. Free cash flow in 2023 is expected to be greater than GBP 1.2 billion.

As mentioned, we had several cash advances in our '22 cash flow, which will start to unwind as we build our programs. We will also have higher CapEx to fund growth from our record backlog as well as a higher cash tax charge.

But looking at '22 and '23 together, the average run rate in excess of GBP 1.5 billion per year represents strong conversion. When we started our 3-year cash guidance in 2019, we set a target of GBP 3 billion, which we ultimately exceeded.

Since then, we have routinely upgraded our 3-year targets, and we once again outperformed on the most recent target, which concluded in 2022. This demonstrates that the business has structurally improved to deliver increasingly higher levels of cash over these 3-year horizons.

For our next 3-year cash target, we expect to deliver between GBP 4 billion and GBP 5 billion, reflecting strong cash conversion and investment in our growing business and the normal variability in advances in and out. We have driven our margin expansion over the last few years by focusing on several key themes and actions, including matching business models commensurate with risk, converting operational excellence and to risk retirement rather than risk consumption, inflation management through a commercial model and strong supply chain performance, margin accretive acquisitions and divestments of diluted businesses and self-help initiatives to improve cost efficiency.

Going forward, these themes should continue to be favorable. In addition to these key drivers, we specifically expect to see steeper recovery in higher-margin commercial business in ES, a better mix effect from higher relative contribution from ES as supply chain pressures eventually abate across the medium term, further uplift from maturing programs, continued operational improvements in ship repair and broader efficiency initiatives across the business.

All of these are expected to more than offset the headwinds from higher cost inflation and gradually rolling off of the relatively modest Fast Cash pension relief in our U.S. business.

So we expect to drive further margin expansion in the coming years. I'll close with capital allocation, where we have been consistent in our messaging and actions.

As you've seen, the business is delivering higher cash and is structurally set to deliver good long-term cash generation. The higher cash flow provides increasing amounts of capital to allocate to maximize value.

Through higher disciplined investment in R&D and CapEx, we continue to prioritize investing in our business for growth. We recognize the importance of the dividend to our shareholders, and this year marks the 19th consecutive year that we have increased our dividend.

We will also continue to allocate capital to grow our business through value-enhancing M&A with a focus on high-end margin-accretive technologies. The current buyback program is progressing ahead of schedule and demonstrates that when there is surplus cash available, we will continue to make additional share repurchases if appropriate and within our capital allocation framework.

So in summary, we've had a strong year financially and the business is building excellent momentum as we move into 2023 and beyond. With that, back to you, Charles.

Thank you, Brad. As outlined, recent performance has been good, and we are well set for a successful 2023.

This really is just the start, though. Looking further out, we are confident in delivering for our stakeholders and our position for good sustained top line growth, margin expansion underpinned by a robust business model and strong cash generation, allowing for capital allocation flexibility within a balanced framework.

Brad has just covered the robust business model and cash generation and deployment. I will now focus on top line growth.

Since the interims, we have seen defense spending commitments, coupled with tangible orders drive us to a record order intake. On the back of organic growth in the last 4 years, we now see a period of sustained top line growth driven by our order backlog and multiyear programs providing visibility on long-term value generators, many in their early phases.

Global defense budget increases in the face of acute threats working through the procurement system, highly-relevant and leading defense technologies and franchises with incumbent positions often with high barriers to entry and a diverse geographic footprint and deep customer relationships. And here, I'm excluding any further upside from a significant opportunity pipeline and deployment of our future cash flow.

This slide gives more color and there is further detail by sector in the backup materials. At GBP 59 billion, the order backlog provides the basis of our near-term visibility.

And as you will remember, what we book in funded backlog is, in many cases, just a subset of the long-term program outlook. For example, Typhoon support, F-35, submarine and ship build program positions give us visibility of over a decade.

All our sectors and major franchises are set to grow over the medium term with good cash generation. Since last year, a number which were previously stable are now set to deliver growth, primarily MBDA and our heavy armor and munitions operations around the world.

Our Swedish combat vehicle business shows one of the strongest CAGRs over the next 5 years, and we plan to hold a capital markets event there in June. Observers often underestimate the extent to which BAE Systems is largely a long-term contracting and delivery business, which means that awards made now will be traded out over many years to come, often with a slow start as new programs ramp up.

As you know, there is a time lag between announcement, booking an order, and then sales and margin being traded, which means that we have visibility for many years ahead -- sorry, which means we have visibility for many years ahead from awards made today. On this chart, you can see that many of our major programs are in their early phases and will be delivered over the years to come with corresponding financial returns and retirement of risk.

We see our uniquely diverse global defense portfolio as a particular strength at this time, highlighted this year in our strong relative sales performance. Defense spending is high on many national agendas today with long-term spending commitments and recapitalization programs underway in many areas.

Our domestic presence in the U.S., U.K., Australia and the Middle East is well established, and we see good growth from our businesses in these regions. What is perhaps less appreciated is that our ability to export from the U.K., U.S., Australia and Sweden, coupled with our positions on Typhoon and F-35 and our shareholding in MBDA mean we are uniquely well placed to compete in multiple allied defense and security markets.

For example, here in Europe and the Asia Pacific, we secured work in recent months in combat vehicles, electronic systems content on U.S. exports and the global combat air program agreement between the U.K., Japan and Italy.

We see good growth coming from these regions, boosting our overall sales outlook with numerous additional near- and long-term opportunities. Within BAE Systems, we have evolved, diversified and strengthened the defense and cyber portfolio such that no one program represents more than 10% of group revenues.

We have unique capabilities to design, build and support air, land, sea and space platforms, combined with our leading electronic warfare and defense cyber portfolios. Many of these are proving highly relevant at this time.

Our product and geographic spread mean we are well positioned to offer superior platform and technology solutions to our customers as the focus moves towards multi-domain and interoperable capabilities. Finally, with regard to our growth potential, we have an excellent pipeline of opportunities in long-term structural growth markets to further enhance our core assumptions today.

The majority of the in-year order intake was on existing program positions, but in the second half of 2022, we secured 2.5 billion of opportunities we listed in our interim presentation. The need to restock and upgrade heavy armor and munitions from the ongoing conflict is one area where our portfolio is highly relevant, and we continue to pursue opportunities across all sectors as countries around the world face up to the multifaceted threat environment.

So wrapping up, 2022 was another strong year as we continue to build a reliable track record of operational and financial performance. Strategically, we aim to generate long-term value and leverage core technology capabilities to position the portfolio for evolving customer priorities and future growth areas.

We've come a long way, but I still see tremendous potential ahead for the following reasons. Program performance is strong, underpinned by a robust operating model.

We are investing in the business to support the future. Order backlog has significantly increased, providing the foundation for growth.

We have leading technology solutions for our customers. Our geographic and capability diversity is a real strength.

We have a global opportunity pipeline to further enhance growth, and we have scope to drive further margin expansion. And also, we have a strong balance sheet with good cash generation, supporting consistent value-enhancing capital allocation.

I'm incredibly proud that throughout challenging circumstances in 2022, our people continue to deliver for our customers and each other. That includes our leadership teams, managers, employees, trade unions and partners up and down our supply chain.

These results would not be possible without them. I would like to thank everyone who is either here today or listening on the line on what is a busy day for results, and we will now turn it over to questions.

Rob Stallard from Vertical Research. A couple of questions.

First of all, on the 2023 guidance, particularly the margin guidance, Brad, what have you factored in there for cost inflation on fixed price contracts and also your expectations for supply chain and sorting those hassles out? And then secondly, for Charles, obviously, very good order intake in 2022.

I was wondering if that's going to translate into accelerating sales growth next year and in the coming years.

Thanks, Rob. I think, first of all, we should point out the '22 performance on supply chain.

We've had lots of inflation as everyone's had to contend with. And I think the strength of our business models is really showing up in our '22 results.

So about 1/3 of our contracts are cost plus. But the remaining are -- drives a fixed price work.

And there, we have lots of back-to-back arrangements with our suppliers. We do a lot of hedging around energy prices and electricity.

We have really strong relationships with our supply chain that really, I think, deepened during the COVID crisis and only got deeper as we move forward. And those relationships have really, I think, performed well for us.

And we took long-term pricing commitments in 2021 for a lot of what we procure and that's also helped us insulate. So I think really good proactive supply chain management and has helped us deliver these '22 results, and that continues into '23.

So I think the balance of tailwinds and headwinds I outlined in the slides makes us confident that we'll still have margin expansion. We will have some unabsorbed inflation in our cost structures.

We can't pass on everything, and we have to absorb and become more efficient with how we deliver our business. And so that's all part of how we're looking at our 2023 outlook.

So we're confident we'll deliver margin expansion in spite of that.

Yes, I think to your point, Rob, you know very well that it takes typically 18 months or so before those orders actually start to come through in sales, and so we'd like to trade through on that. And what that does mean is that we are expecting from '24 and beyond to be a material step up in our growth rate.

Nick Cunningham, Agency Partners. In sort of the flip side of that inflation question, the 3% to 5% sales growth that you've got projected for 2023, is any of that inflation, i.e., price driven?

Or is it all volume? And I mean, obviously, given that you've got a long-term contract portfolio in general, pricing is going to be sort of slow to develop.

But does that mean that there's going to be a sort of a bit of a bow wave of price expansion in future years as you reflect the inflation that we've been experiencing recently. And then I have a second different question.

The Congress has just passed a big budget increase. including double-digit procurement budget increases.

But the green book outlook for the next 5 years for procurement outlays is still basically flat or even down in real terms, which seems like a disconnect. Do we expect the new PBR when it comes out in the next month or so to be more realistic in terms of what it's looking for in future outlays?

And how is BAE positioned relative to where those outlays are likely to fall in your view?

Do you want to take the price one and I'll probably bring Tom in on the -- since we got Tom here from the U.S. business on the U.S.

budget question?

Yes. I think there's certainly some element of our '22 versus '21 growth that came from our ability to pass on some inflationary costs, but I wouldn't call it material at all.

And I would say the same comment for '23 versus '22, there will be some elements of that year-on-year growth that will be from escalations and from the cost plus pass longs. But again, being only 1/3 of our contracts being cost-plus, what we're trying to do is develop efficiencies that help offset the impacts of inflation.

And that's, again, while we talk about margin expansion. And if you look at some of the sector performances, we still see operational improvements in platforms and services, for instance, there, you've seen the last couple of years are really continuous increase in margins there.

And that's nearing 9% now, and we think there's still room to go there as we get closer to double-digit margins and platform and services. So there is a small impact of overall year-on-year growth coming from inflation, but it's pretty immaterial.

Having successfully manage this in '22. We're confident we can do that in '23.

Tom, do you want to pick up on the U.S. budgets?

Nick, great question. So we're all watching with the anticipation of how the FYDP in actually the FY '24 President's budget request comes out, we'll see that probably in a couple or 3 weeks.

The same sentiment that drove the increase year-over-year has been manifested, as you mentioned, in FY '23, that same sentiment remains. And although it's very difficult to predict as usual, how Congress will treat that President's budget in the coming months, I think the prevailing threat environment, not just in the near term, but in the longer term, remains, and that's what's going to drive their priorities.

And so the longer-term budget that you see today was developed a year or more ago. And so I think we'll be watching to see how that [indiscernible] updates.

I think the other thing to keep an eye on is the omnibus, right? So the funding that was set aside for Ukraine in particular and how some of that is going to ripple through as backfill to the inventories of the defense department that were drawn down here to support Ukraine now.

And so that omnibus outside of the traditional budget will be something to watch as well. And our alignment there as well as in the traditional budget remains strong.

As we've said, adjusted our priorities over the last 5 years to align well with the National Defense Strategy, and we're seeing that play out in the alignment. Hope that's helpful.

And just a follow-up on the longer-term contracts, for example, Congress put some language into the NDAA for recovering some of the inflation effects for fixed price contracts, for example. And I know that a lot of that is aimed at the smaller guys.

But presumably, there must be some of that for you. So do you expect some of that to come through in later years?

You're talking about the EPA adjustments, for instance, in the U.S. Yes, Tom, you want that one?

If you'd like, Brad. It's mix.

It is not uniform. As you point out, some of it's about the size of where you stack up in the supply chain, but there have been in some segments of the services, application of these economic price adjustment clauses that Brad mentioned, that allows for a bit of a true-up on the basis of how inflation actually plays out.

We've seen some of that. But we are also, as Brad pointed out as well, focusing on cost efficiencies where we need to absorb some of the inflation that we anticipate.

You see in the U.S. that it has stabilized some, it's still high, but it is moving in the right direction, and we're planning accordingly.

Charlotte from Barclays. Just picking up on the outlook.

You're guiding to 3% to 5% organic revenue. That seems a little bit low to me, although Tom was very quick to point out that's ahead of U.S.

peers. So I just wondered, is that something that we should be thinking about in terms of shorter cycle work?

Because I'm just trying to understand the scale of this. I mean, I know, obviously, by nature, it's not in your backlog at the moment, but 10% of your sales, I think, were defined a shorter cycle.

So I'm just trying to understand how much we might expect this year, what your planning assumptions are around that? And the second one was we've done in the U.S.

I move to the U.K. The 2021 integrated review has obviously done pre-Ukraine.

So I mean, logically, it's probably going to have a higher gearing to Army recapitalization, which I think would be a big beneficiary for. Are we still expecting release in mid-March?

Is that realistic? And then finally, on cash, with the sort of 2 years of beat, significant beat on our 3-year cumulative free cash, you're over halfway through the buyback in 6 months or a 3-year duration upgrade.

Maybe we'll do it in reverse order. So Brad, do you want to do the cash or...

a reminder of our capital allocation waterfall...

Well, we are making good progress on the share buyback. So we have a 3-year GBP 1.5 billion on program.

So we still have some ways to go to conclude that. So our guidance assumes that we finish the second tranche, and then we'll update you on where we are once we finish that.

So just you can see the RNS feeds, and you can get updates on how we're progressing. But our assumption is that we finish the second tranche this year.

And then just to Charles' point, we're always looking at capital allocation following our IR. We want to grow the business and those increases in self-funded R&D are really important.

We have a really rich opportunity set of investments and projects, and we're putting those where we had the highest returns. So it's in electronic systems, and it's an error.

So we're very disciplined in how we're doing R&D, but we see lots of opportunity there. And that secures long-term growth as we convert those projects into revenue-generating activities.

And then the CapEx, we will have an increase in CapEx in 2023, and that's supporting this bigger medium-term growth outlook that we're seeing now. So I think touching on your first question on sales, if I may.

The outlook is, you can see it in our backlog, we expect to see steady increases in our growth rates. So CapEx will be needed in 2023 to support that growth, which is up shifting across the medium term.

But the dividend increase as well, we've talked about that, how that's grown for 19 years in a row. We've got a great balance sheet that supports M&A where we will be disciplined players in that market.

And I think in the last couple of years, we've demonstrated that we can add really high-quality assets into the portfolio. And we want to continue to do that to grow ourselves inorganically.

And then as we have demonstrated as well, if there's anything left over, we've been using that buyback as a very effective part of the toolkit, and we're very comfortable with operating in a mandate as we've been doing. And we're going to be continuing to look at that as we move forward.

And then on the growth rates, I mean, some of that is a shorter cycle, but I think part of it comes back to my earlier answer to Rob is that those orders that we're seeing, the strong momentum in the business, it does take 18 months or so before that really starts to get traded through and we start seeing that effect and a step-up in growth rates in '24 and beyond. And so in '23, there is a balance, obviously, I mentioned we're appropriately investing in the business, hiring the people, building the pipeline of talent, but there is a huge amount of momentum building within the business for the years to come.

On the topic of the integrated review, I mean, it was, as you say, being revised in the light of the invasion. And there's been a bit of stuff in the press of late as to whether it lands on time or not.

I know there's a fair bit of work being done on it, and we all await with interest, but it really is -- I mean, it wasn't an old review, but given recent events, I think it was entirely right and proper that it's being updated.

George Zhao from Bernstein. First question maybe for Brad.

On margins, it looks like C&I, that's the only segment expected to be down in '23. I guess what's unique, what's going on in therefore, to be the only segment down.

And on ES, have the earlier supply challenges around labor have that more or less normalized? And how much of the 4% to 6% growth this year is driven by the commercial side versus the defense side of the portfolio?

Yes. So on C&I margins, they've been running pretty hard on utilization in 2022.

It's over the mid-90% range. And that's hotter than what we'd like.

So we will need to resource up to support really strong national security cyber demand that we're seeing. So there will be a little bit of reduction in utilization, it just needs to get into a more optimal place there.

And the other thing, too, is, we're investing a lot in our digital intelligence business. And you've seen some of the materials that we're putting out there on project Azalea.

So it's the low-earth orbit constellation with different sensor payloads. And there's a lot of R&D that's going into that.

And a lot of multi-domain network R&D that's going on as well. So DI is one of the spaces where we're really investing for what we see as high CAGR growth over the long term.

So there's some investment profile that's affecting the '23 numbers a little bit, but we think that there's really good payback with those projects. Those are the 2 main factors on C&I.

On ES, maybe Tom, do you want to touch on that?

You used the word normalized, and I think that's a good word. I think what I'd point to is the predictability of the delays associated with the supply chain, much of what we've seen in Electronic Systems as we've reported, been associated with the higher-end microelectronics.

And that sort of delay in delivery remains. However, because it's more predictable, more stable, we've been able to work around that, and I think that will continue.

Much of the balance of the sorts of commodities we've seen in having been disrupted in the past, we've been able to work through by a number of means, adjustments in our production flows. Brad mentioned a different approach to inventories, that kind of thing.

And so it's being managed, and we don't expect any additional disruption from there.

On the top line, Tom, on the commercial side, we do see growth in both the flight controls and avionics business and also the hybrid power and propulsion business, if you want to touch on...

Those recovering, as you can imagine, as everyone -- with any sort of commercial aerospace in their portfolio is reporting, we're seeing good our airline travel passenger uptick, the aftermarket that follows. And just for some perspective, and this is in our reports, our commercial business is about 10-ish percent of the overall ink business.

And so proportionately, the bulk of the growth is coming elsewhere. However, that is certainly a contributor just given the sort of from and to right, post COVID.

Chloe Lemarie from Jefferies. I have 2 questions.

The first one is on AUKUS. If you could update us on this on the discussion and potential time line on a decision there?

And the second one is on the margin evolution. So you touched on the topic saying that you still expect further margin expansion.

Could you help us understand to where you might be going to and the pace of the increase in margin in the next few years?

AUKUS I'll be brief. Basically, there's not much I can say at a public forum like this.

But as you recall, it was announced almost 18 months ago now at DSEI in 2021 with an 18-month study period with a conclusion around about first quarter of this year. And everything we hear is that there is -- we still expect an announcement within that sort of time frame.

I mean there are activities, there's 2 pillars of activities, one around the submarines and then the second around the range of other activities like cyber and quantum computing. And I would just say that given the strength of our business across all 3 nations, I think we are well positioned to benefit.

And that's really all I can say on AUKUS, and maybe for you, Brad, on the margin progression.

Yes. I think, well, on '23, apart from the Cyber & Intelligence business that George mentioned and we talked about every sector, we see expanding margins.

So I think over the long term, so across the medium term, I think the one sector that we'll see, I think, the biggest margin expansion to the platforms and services. And we -- again, we're sort of approaching 9% in '22.

You'll get past that in '23, and we're on a journey to get to double-digit margins in P&S. So that, I think, is the one sector that probably has the biggest runway left.

But we see really at high rates already in Electronic Systems. We want to make sure we continue to invest and protect that business.

So that's where you see us putting a lot of self-funded R&D into, but that's at a high rate already. And then maritime and services, I think between 8% and 9% is sort of where you would expect them to be.

And then air, I think in '23 versus '22, you'll see some margin expansion in there. And going forward, I think that business should be running at a pretty good margin.

So I think the one with the biggest runway is P&S.

Christophe Menard, Deutsche Bank. I have 2 questions.

One on capital allocation and M&A. Could you comment on or update us on your priorities if they have changed?

And also on valuation, if the -- if -- I mean, we're talking about bolt-on technology acquisition if these -- the potential targets have become more affordable. And going back to the air margin, the 11% to 12%, is it a combination of risk retirement and also slightly lower self-funded R&D or just risk retirement?

I think on air, maybe you comment, Brad, but I think it's stable on this self-funded R&D and more risk retirements, but over to you on that one.

Yes. I think it's -- again, operational excellence is what allows us to retire risk rather than consume it.

So I think it's more about risk retirement than anything on self-funded R&D. Although I think self-funded R&D is probably not going to be a margin deterrent.

I think on M&A, and we are interested still actively in the bolt-on areas that we've spoken about before, Christophe. So the strategic fairway that we've identified and highlighted around sort of multi-domain space, defense electronics, the sustainability driven sort of product space around power propulsion solutions, the air taxi, [indiscernible] market.

I mean, they are all areas that we're actively looking. I think on valuations, I mean, we've said before that we'll be disciplined on valuations.

And it's probably fair that we haven't seen much of a deterioration on valuations yet, although there still may be some as the tech sectors have experienced a few challenges, but we're actively looking. And what you saw last year, we did Bohemia Interactive.

It was a very successful acquisition. We've done in space.

We've done a number of these smaller deals that are already proving to be, I think, very wise buys, and we're pleased with what we've done and pleased to see that kind of -- those kind of deals continue.

We're not looking at big transformational M&A. We are continuing to look at the bolt-on category.

So this is less than 10% of market cap is kind of how I define bolt-ons. So we're looking at bolt-on type deals, not transformational deals.

Yes. So Martin, having reminder, we've got some questions on the line.

We probably should take a question on the phone if we can.

Sorry, I can't be there in person. There's a disease going around the last few years, which I didn't want to pass off.

So the first question is on Japan. So Japan, of course, announced some big targets on defense spending.

What scope is there for BAE to help them achieve those reagent plans here? Can you build on Tempest to expand elsewhere?

Is there any comment you can give? And then I've got a second -- another couple of questions or going a bit detail.

On MBDA, what is preventing faster growth at this point? Is it predominantly the supply chain?

And if so, would additional capital help? Or is there anything else you can do to expand that?

I imagine demand is very strong. And lastly, U.S.

ship repair, if I got my numbers right, it looks like it was down in the second half of the year. And of course, there's some commentary in your release as to why that is.

Is your sense that, that demand will then normalize in 2023? Presumably you have some ability to predict where that's going to go?

Yes. All good questions.

On Japan, you somewhat answered it yourself. I think there are further opportunities.

Obviously, I mean, GCAP is -- a Global Combat Air Program, is a very, very significant first step. But as Japan looks to double its defense spending over the next several years or potentially double defense in the next several years, I mean there will be, I believe, further opportunities there.

And that's why we're keen that obviously, we stand up the Global Combat Air Program effectively and then exploit those, hopefully, the opportunities that will come in other sectors and make ourselves very strong partners with MHI and look forward to working with them on that program and others. On MBDA, I think it's something that we see, not just in MBDA, but in our munitions and others.

There's a limit to what you can do in terms of, in a sense, sweating your existing footprint, adding people and getting more out of your existing manufacturing base versus adding more capacity. And in fact, when we have both trends in progress for both MBDA and munitions and so on, but obviously, it's the second that really add to the long-term capacity.

And that just takes a bit of time to build that. I was at Bolton just before Christmas with the team at MBDA and looking at those investments, but those tend to play out in terms of delivering additional output in '24, '25 and beyond.

So I think that's a little bit of what you're seeing. On ship repair, I mean I've got 2 experts here, but I'm trying to think who -- I mean, Tom, do you want to tackle that one?

Yes. No, thanks for the question.

So I think the commentary points out what this was the result of was in the wake of the conflict in Ukraine, the U.S. maybe stepped back and looked at its deployment portfolio and made a few changes that took ships that were scheduled to come in for repair in our Norfolk yard out of the pipeline.

And so that resulted in a temporary dip. Those ships are now back in the pipeline, and we expect that to remain full throughout.

And so a temporary sort of downstep in light of the Navy's redeployment. That was it.

There is pretty decent year-on-year growth in ship repair that we expect.

Can I just follow up...

Yes, go on. Is there another question on the line?

Or another from the same call?

Yes, it's Ian again. Can I just follow up on the Japan question.

I mean how soon before you start talking about this in more [indiscernible] we can talk about other programs that might come through? How quickly is the Japanese government moving?

Actually, they are -- I mean, what you've seen been pretty profound changes in the last couple of years in terms of their outlook for defense and their spending priorities. But I think it will take naturally some time for that to come through.

Having said all of that, they moved pretty swiftly on Global Combat Air Program, and that opportunity evolved actually at a pretty fast pace over a 12-month period. So let's see.

I mean, I think we're keeping a very close watching eye on that.

Yes, I would have a few. The first one on order intake.

You had a very strong 2022 a record year, but it doesn't reflect the reaction to Ukraine. Can you give us a sense of the order intake that you've baked in for 2023 in your guidance?

The second question I would have is on FCAS. You had a pretty large order announced by the U.K.

MoD. What was the revenues in 2022 that you did on FCAS test?

And what can we expect in '25 or '26? Same question for Hägglunds & Bofors, what was it in '22, and you mentioned a very high CAGR.

So what could it be for in '25, '26? And lastly, R&D in '22.

What was it? And what should it be in '23 in your mind?

I mean the order intake going forward is, I mean, as you said, '22 is an exceptional intake. I'd like to say we could do that every year, but we can't simply put.

But we are expecting book-to-bills of well in excess of 1 certainly for the coming few years. So I think we have continued momentum there, but probably not to the extent that we saw in '22.

On FCAS, I'm not sure we break that out, Brad. I'm not sure we really want to break that out.

I will say the activity is doubled year-on-year '22 versus '21, and we expect it to double again '23 versus '22. And then the growth will start to stabilize as we get to the 2025 key milestone there.

But it is a source of growth in air site. And on Hägglunds, I think over the medium term, in the next 3 years, it wouldn't be surprising to see Hägglunds triple in size in 3 years.

So it's got some of the highest CAGRs in the group.

And that's from a few hundred million dollars, it should be worth saying.

And the R&D.

I'm sorry. Go on.

Maybe you...

What was the question on R&D?

The question is the growth in R&D and the step-up that we've seen.

Yes, I think -- well, first of all, it has stepped up significantly '22 versus '21, and we expect it to ramp up, again, '23 versus '22. So it will be double-digit increases year-on-year.

So...

It's almost a 50% increase in the last 3 or 4 years. I think I remember sitting here '19 or '18 saying we're going to add another GBP 100 million to the GBP 200 million.

And the 2 big areas that we're going to benefit from self-funded R&D investments were Tempest alongside government funding, and that's what we've been doing. And then continued investments in our Electronic Systems business, which has proven to be a very rich and fertile ground for R&D investments, and there's a great structure over there called FAST Labs, which Tom and the team have created, which where we partner our funding alongside and usually co-funded with government funding from U.S.

government labs like DARPA and that's proven to be a very successful initiative for us, which has driven growth in our Electronic Systems business, and that will continue.

I think it's also important to just emphasize that when we do R&D investment, apart from the customer funding, the cell phone R&D really is targeted on high-return opportunities. So we're very, very disciplined about how we pursue that.

So I think that's been a real success, and now we've converted some of these R&D dollars into top line programs. So we invest in a very disciplined way where we get the highest returns.

I just wanted to come back, Charles, to some of the comments you made about growth from 2023. You said a material step-up in growth rate potential from 2024.

Is there a chance we see a period of high single-digit growth at the group level? Is that what we should be thinking about?

That's the only question? I mean we're not going to give medium-term guidance.

I mean, I think the best I can say is a material increase from where we've been in the last 2 or 3 years as that record order intake and the environment that we see does start to flow through into the business. So next, is there someone behind you who has been waiting, I might add.

This is Alessandro Rossi Polvara from JPMorgan. I'd like to ask 3 questions on behalf of David Perry, please, probably all for Charles.

So the first one, in land vehicles, you had some very good reason wins in Central and Eastern Europe. What the opportunities do you see in this region?

The second question is on ammunition. Please, can you tell us on your current sales and exactly what products you make and for who is this a source of upside for you.

The third question is, on Slide 29, you show opportunities in U.S., Europe and Asia. I'm surprised in the Middle East is on the slide.

Do you see any opportunities in the Middle East in the next few years?

I mean in Eastern Europe, yes, there are further opportunities. I think people often underestimate our footprint across Europe.

I mean not just [indiscernible] businesses out of Sweden, the CV90 wins that we've had, obviously, getting Czech Republic on contract, but that -- those are 2 very strong businesses with strong footprints and with Sweden and Finland essentially in tomato. I mean, they themselves from a domestic perspective, are going to see good growth, too.

And our shareholding in MBDA and our position on Eurofighter actually means that the combination of our European business is actually really strong. And we've seen that trend of increased European defense spending coming through in recent years.

And obviously, given the threat environment we're operating under, we see that continue. On ammunition, well, I mean, David knows well that we are the -- one of the main ammunition suppliers into the U.K.

And back to my earlier comments, we've based on [ castings ] from the U.K. customer being increasing output based on our existing footprint and also adding to that capacity, but adding to the capacity takes time.

I mean it takes roughly 18 months to add additional manufacturing footprint. We started that middle of last year.

So obviously, it doesn't really come on stream until end of this year or into next year. But there are some opportunities there.

And since I have Tom here, it's probably worth highlighting within the U.S. with the 2 GOCOs, the government own company operated, we basically run the 2 facilities in the U.S.

that supply the bulk of the energetics that go into the U.S. ammunition supply.

I mean, Tom, is there anything you want to say on that, particularly?

GOCO government-owned contract or operated. So we run those for the government, but these are Army facilities.

These facilities span a range of propellants and explosives. We have been working with the Army over the years to modernize some of the facilities to increase capacity.

We expect those investments to pay off in terms of more and better output. There are additional modernization opportunities we're working with the Army as well to find other bottlenecks that can be expanded.

And so good sort of in the -- more ingredients of what makes its way into munitions would play a significant role there as well.

And just to close on the Middle East, yes, there are still quite a lot of opportunities in the Middle East, additional Eurofighter opportunities across a range of markets where we've historically sold to and further opportunities. So it certainly wasn't any emission on the slides.

There are plenty of opportunities there, too. Nick, I think you're...

My question was also kind of a nostalgic for a discussion of Middle East Typhoon orders. But which has already partly been covered obviously.

But the -- specifically on Saudi, the -- I don't remember it was an LOI or an MOU, but it's still out there. I don't think it's lapsed, so to speak.

So is there any realistic possibility of that crystallizing? And also beyond that, if you look at the Saudi fleet, there's about 80 very old F-15s, which it doesn't look like Congress is going to allow the U.S.

to replace. So is that something for you to play for?

Or is [indiscernible] it?

Well, definitely. I mean Saudi is an incredibly important customer for us.

And we are working on developing a couple of quite significant opportunities there. I mean probably all I'm going to say on Saudi at this point, but it remains a very important market for us.

Do you want to wrap up, Charles?

Yes, I want to thank you all for coming. But I also want to -- since it is the Chairman's final results presentation, I wanted to just have a round of applause for the Chairman, and just add to my thanks earlier.

So thank you very much, gentleman.

It's very kind. Only results I've ever been to, I've heard a round of applause.

So I should take this with me and treasure it, but to thank you all, too. You all put a lot of effort into following this business.

The team are really worth following. They've done a terrific job, and we'll continue to do so.

But I'm very appreciative of the time I've had with this company, and I'm hugely appreciative for the support that you've all given it and the great people that actually run it. So thank you very much, indeed.

Thank you.

Thank you.