QinetiQ Group plc (QQ) Earnings Call Transcript

Good morning, and welcome to our presentation where we will explain our acquisition of Avantus Federal in the U.S. that we announced on Friday evening. I'm John Haworth, Group Director of Investor Relations at QinetiQ. I'm joined by Steve Wadey, our CEO; Carol Borg, our CFO; and Shawn Purvis, President and CEO of our U.S. business. Steve, Carol and Shawn will run through the presentation, after which there will be an opportunity for you to ask questions. [Operator Instructions] Steve, over to you.

Great. Thank you, John, and good morning, everybody, and welcome to our Webex this morning. I'm absolutely delighted to share with you that we've entered into an agreement to acquire Avantus in the U.S. The conflict in Ukraine has reinforced the vital importance of a technologically advanced defense and security industry, especially in precision effects that we see on the TV, but also in the rapidly growing domains of cyber and information that we don't see. This deal is a major step forward in delivering our long-term global growth strategy and is totally aligned with our customers' mission, both now and in the future. We've selected Avantus as a high-quality business with state-of-the-art mission-focused cyber and data analytics capabilities similar to those that we have in the U.K. The combination with QinetiQ, which meets all our acquisition criteria, creates a powerful and differentiated team, providing an exciting new platform to build a disruptive mid-tier business in the U.S., an opportunity to leverage our capabilities for our customers globally, and offers compelling returns for our shareholders as we drive growth. So let me start by giving you a summary of the strategic rationale and the key transaction terms. These are the 7 key highlights of the deal. It's an all-cash acquisition of $590 million including a net tax benefit worth $70 million to us. Avantus is a market-leading, mission-focused cyber, data analytics and software development solutions provider for U.S. defense, intelligence, and Homeland Security customers. It delivered approximately $300 million of revenue last year and has 1,150 employees. Avantus provides a strong and aligned cultural fit focused on its customers and employees, and has a very talented management team and employee base, which augments our strengthened U.S. leadership team that we have recently built. The combination of Avantus and QinetiQ transforms our U.S. business with complementary capabilities to create a platform to accelerate growth in our customers' high priority segments aligned with the U.S. national security mission. Avantus is a mature and highly integrated business that is aligned with our global strategy to focus on and build 6 distinctive offerings by extending our customer base and increasing our breadth and scale within the U.S., whilst providing further growth opportunity from global leverage. Financially, the business is highly attractive with a $2.4 billion order pipeline, providing significant visibility and at least 10% forward revenue growth, attracting stable double-digit operating margins. The business case for the acquisition is compelling with enhanced shareholder returns and effective use of our balance sheet. The deal is a strong strategic fit, compelling economic case with high confidence integration and a major step forward in delivering our global growth strategy. The key terms of the transaction are: From a valuation perspective, the deal is an all-cash acquisition at a purchase price of $590 million, including the $70 million tax benefit. The last 12-month performance of the business to June 2022 was $298 million of revenue with $35.5 million of adjusted EBITDA, representing an enterprise value multiple of 14.6x, net of the tax benefit. In terms of financial performance, we expect the business to deliver at least double-digit revenue growth and stable operating margins consistent with our group guidance. Therefore, the deal will be immediately earnings accretive with double-digit EPS growth by the end of the first full year. And return on invested capital will exceed our cost of capital by the end of the third full year after completion. The financing of the deal is very conservative through a combination of existing cash and new debt facilities, creating leverage of approximately 1.3x net debt-to-EBITDA, whilst targeting rapid deleveraging to less than 1x by the end of the first full year after completion. The deal is subject to U.S. regulatory approvals and customary closing conditions, and we expect the transaction to complete by the end of the calendar year. In conclusion, this is a fantastic strategic acquisition for our company, but is completely in line with our global strategy, creates an exciting platform to grow in the U.S., and will deliver enhanced shareholder returns. So let me introduce the agenda and team for this morning's presentation. First, we have Shawn Purvis, our President and CEO of QinetiQ U.S. Shawn joined QinetiQ in February and is making great progress with her mandate to deliver our short-term operational performance. Today, she will talk to you about Avantus and the powerful combination with QinetiQ U.S. as part of our strategy to realize our long-term ambition and deliver a disruptive mid-tier business in the U.S. I will then give you more color on the strategic rationale for the acquisition and the role it plays in delivering our group's global growth strategy. Then Carol Borg, our Group CFO, will talk you through the financial aspects of the deal and why it offers compelling returns for our shareholders. Finally, I'll run through the transaction timetable and summarize, before we take any questions. I'll now hand over to you, Shawn.

Thanks, Steve. We're excited today to discuss our proposed acquisition of Avantus into the QinetiQ U.S. portfolio. Avantus is a United States defense contracting company, providing mission and operation support in the areas of cyber, data analytics and software development to the United States defense department, the intelligence community and the Department of Homeland Security. Avantus has over 1,100 employees, of which 92% are cleared. Their skill sets are in the expertise of data engineering, cloud development and cyber and intelligence analysis. The security cleared employees are individuals who have been granted access to support the customers' most exquisite missions. They are passionate and dedicated to providing the best solutions to our current customers. The Avantus employee demographics are an excellent fit for QinetiQ. Their diverse employee population is over 33%, and over 88% are direct billable to current contracts, all are steep and highly technical skill sets such as engineering, technical program management, intelligence analysis and operations. The company's core capabilities align nicely to our current strategic areas. Avantus' work in intel analysis, data software and digital engineering aligned to our information advantage and test evaluation areas. They develop and deliver automation, software and systems applications in support of the customer. Their mission enablement, augmented intelligence and cyber operations align to our technical engineering and training focused areas by delivering key artificial intelligence, data processing, training, and cyber range program support to the government customer. Their core market is split between the United States defense and space, the intelligence community, and the Department of Homeland Security. For example, in the defense market, for a space-related customer, Avantus provides engineering and analytical support in advancing a critical evolving mission and the agile development of innovation space concept they deliver in support of the national defense space architecture. They work to identify existing and future requirements based on evolving threats, identifying and [ analyzing ] concepts and technologies for mitigating operational gaps. And they develop a concept for operations for how a system of systems would be used in support of the defense customer. For an intelligence customer, the Avantus team supports a dynamic cyber tool test automation program that seeks to improve and evaluate a wide range of capabilities before fielded to operations. This work also includes special project groups, who manage and maintain and enhance complex operational network and associated automation framework. In all, Avantus has a strong portfolio, a powerful set of capabilities, and is poised to deliver key requirements to customers in support of the United States national defense strategy. The combination of Avantus and QinetiQ U.S. make a powerful United States defense contracting company poised to deliver critical services, technologies and solutions to our government customers. From a competitive and customer perspective, this combination allows the newly combined company to address an expanded customer market. It positively shifts the current portfolio into a balanced DoD, intelligence, federal and civil expanded market arenas. The combination also provides a solid foundation for revenue growth and expansion with new business development opportunities that will utilize our strong capabilities of cyber, information solutions, mission services and program support. Our planned investment in capture and business development resources are targeted to accelerate the revenue synergies and double-digit forward growth with stable margins. The Avantus business have a strong cultural fit to the QinetiQ U.S. They are mission-led, customer-focused, and the integration of the 2 companies will strengthen our workforce, particularly in the technical data analysis, engineering, technical program management skill set. The future combined leadership team are recognized successful leaders within the government contracting community. This integration provides a powerful and highly confident leadership team poised to deliver on our strategic growth plan in the United States market. On day 1, we plan a detailed focused integration plan that will target our people, processes and tools. The current performing business from Avantus will operate as a business unit led by current Avantus senior leadership to ensure customer continuity and continued focus on program delivery. From a systems and processes perspective, the team will be focused on creating an integrated business platform that will integrate and leverage the best of breed from each company and will create a cohesive environment for our employees, unlocking the full potential for value creation. I will now turn it over to Steve Wadey to speak to our global growth strategy.

Great. Thank you, Shawn. So let me put Avantus into strategic context at group level. So QinetiQ's investment case is to build an integrated global defense and security company delivering mission-critical capabilities for its customers, operating in attractive markets with distinctive offerings and delivering good returns for its shareholders. Our major focus for growth into our addressable market is worth more than GBP 20 billion per year, as shown on the left-hand side of this slide. And that focus is into our 3 home countries: Australia, U.K. and U.S., where we're pursuing similar opportunities to support those customers' shared defense and security mission. Our strategy to grow into this addressable market is disciplined and underpinned by our clear capital allocation policy. We drive organic growth by investing in our distinctive offerings to build local differentiated capability. In addition, as we have described many times before, we have been actively seeking strategic acquisitions to complement our organic growth that strengthen our capabilities, extend our customer base and build scale with Australia and the U.S. prioritized. The U.S. market, as shown by the green box, represents our largest growth opportunity. Avantus is a highly attractive acquisition to enable our long-term growth in both this market and globally. The business, which doubles our scale in the U.S., is at the heart of the customers' mission in rapidly growing cyber, data analytics and software development segments, which attract higher growth rates than the overall market. The business, which we have diligenced thoroughly, is mature, highly integrated and a similar people-based business profile to QinetiQ and a great cultural fit. And the complementary capabilities, customer relationships and contract vehicles create a strong platform to drive U.S. growth, including revenue synergies. In summary, Avantus is completely aligned with our global strategy and meets all our acquisition criteria to accelerate growth in the largest defense and security market in the world. As I've shared with you before, we deliver value for our customers and enable growth by focusing on our 6 distinctive offerings. Our long-term objective is to build a company with a full suite of offerings in each of our home countries so that we grow coherently into our addressable market. The picture on the right illustrates in blue the current breadth of our offerings in each country and the capability acquired with Avantus is shown in green. As you can see, we're acquiring capability directly aligned with 4 of our offerings with the bulk of capability aligned to our engineering services and support and cyber and information advantage offerings. Here, you can see we are creating a business in the U.S. with a very similar capability and risk profile to the business we managed successfully in the U.K. Therefore, the acquisition offers low operational risk to the group. This coherence also provides further opportunity for global leverage in support of the trilateral partnership between the governments of Australia, the U.K. and the U.S., known as AUKUS. So why is this different to QinetiQ's distant history? There are 3 main differences that give me confidence. Avantus is strategically aligned and selected as a high-value business, attracting high-value margins, coherent with group capabilities. We have built a strong leadership team led by Shawn, whose capability and values are aligned with the group and will be augmented by the great talent who will join us from Avantus. And we have established an effective governance model through our U.S. Board, which Andy Maner, Avantus' founder and current CEO, will join, and our special security agreement, known as the SSA, with the U.S. government. In addition, as Shawn mentioned, we've developed a high confidence integration plan focused on our customers, people and systems and processes. The acquisition of Avantus is a good example of our disciplined execution of our strategy and demonstrates good progress to realize our growth ambition by creating a global leader in high-value solutions to national defense and security challenges. So let me step back and look at the effect of acquiring Avantus to the group on delivering our 5-year global ambition. Over the last 6 years, we've grown the company by 75% to GBP 1.3 billion of revenue, as shown from the first graphic on the left to the second graphic. The third graphic shows the FY '22 pro forma revenue for the combination of Avantus and QinetiQ. Group revenue grows by 25% and to GBP 1.6 billion, and U.S. revenue more than doubles to 25% of the group. In May, I explained that we are at exciting stage in the development of the company with recent events in Ukraine reinforcing the long-term needs of our customers for our high-value solutions. And as a result, we increased our ambition to grow to more than GBP 2.3 billion over the next 5 years, as shown in the fourth graphic on the right-hand side. This acquisition creates a platform to accelerate both U.S. and global growth and is a significant step towards delivering our long-term ambition. We remain focused and on track to build an integrated global defense and security company to deliver sustainable growth with enhanced returns for our shareholders. I'll now hand over to Carol to talk you through the financial aspects of the deal and why it does offer compelling returns for shareholders. Over to you, Carol.

Thanks, Steve, and good morning, everybody. Like Steve and Shawn, I too am delighted with this acquisition. And in this next section, I'll outline some of the key financial metrics and why we are confident that this will deliver strong returns for our shareholders. I'll be addressing 3 distinct areas: Avantus' strong financial profile, our conservative financing strategy, and how this delivers shareholder value and returns. So here, I'm showing the financial profile of Avantus under our 4 key financial metrics: Orders, revenue, operating profit, and cash, all shown in Avantus' year-end. Firstly, on the top left, our extensive due diligence has concluded that Avantus has a robust order pipeline. With an order pipeline for the next 5 years at $2.4 billion and a win rate on primary competes at greater than 90%, this gives us good forward visibility. In the 12 months to June 2022, Avantus has won in excess of $400 million of orders and has 76% of their expected 2022 to 2024 revenue covered by a combination of backlog, which is secured, and anticipated high confidence wins on contract growth, extensions, and recompetes. Next on to revenue. Avantus has a strong track record of revenue growth, both headline reported and on an organic pro forma basis. In the 12 months to June 2022, Avantus has delivered revenue of $298 million. We are predicting at least double-digit compound annual growth for the foreseeable future, which is achievable due to the nature of work performed being consistent with areas of increased spend and focus in the U.S. defense and security budget. Now on to operating profit, bottom left. Avantus has delivered attractive and stable double-digit operating margins. In the 12 months to June 2022, Avantus delivered adjusted EBITDA of $35.5 million, and EBIT or operating profit of $32.2 million, a function -- resulting in an operating profit margin of 10.8%. We see absolute profit increasing as a function of the revenue growth with some modest percentage margin improvement opportunity in the mid to long term to the lower end of our group guidance. And finally, on to cash. Like QinetiQ, Avantus is cash generative, asset-light advisory and solutions-based business with operating cash conversion in excess of 90%. So in conclusion, Avantus is a highly attractive business with significant order visibility, providing revenue growth at stable margins. We have put into place a conservative financing structure to secure this acquisition. We have GBP 350 million of fully committed debt financing with our key relationship banks, all of whom continue to show strong support to our global growth ambition. As previously referenced by Steve, our capital allocation policy has been deployed. And we'll be using existing cash to partially fund this deal, resulting in a reduced interest rate exposure. Further, we have flexibility within our existing revolving credit facility, GBP 275 million, that is currently undrawn. You will recall that I have previously mentioned that our balance sheet could support at 2x leverage if we felt it appropriate for the right acquisition. At completion of this acquisition, we expect a very conservative leverage of 1.3x net debt-to-EBITDA and are targeting to reduce leverage to less than 1x by the end of the first full year of completion. This is achieved through the cash-generative nature of the combined business with a further potential to accelerate deleveraging with proceeds from any noncore disposals that we constantly review as we continue to deliver on our strategy. So in conclusion, this conservative financing structure makes more effective use of our strong balance sheet. My final slide brings together our compelling business case with enhanced returns for shareholders. In order to do this, let's look at the acquisition through our 3 investment gates. Firstly, strategic fit. As described by both Shawn and Steve, the Avantus acquisition is the right strategic choice that will support us in delivering our global growth strategy. This increases our breadth and scale in the U.S. and is fully aligned with our 6 distinctive offerings, particularly in the areas of engineering services and support and cyber and information advantage. Further, this doubles our size in the U.S., making us more relevant, and accelerates our growth in the world's largest defense and security market. Secondly, economics. As I mentioned previously, Avantus is a mature business with significant order visibility, revenue growth at stable margins, and strong cash conversion. Our purchase price translates to what I believe is a fair valuation for a high-quality asset. Our business case has a forward multiple forecast that is expected to reduce to single digit by the end of the third full year following completion. This transaction also creates relief, which is anticipated to generate a cash tax benefit. We have modeled what this means for the combined U.S. business discounted by our weighted average cost of capital. This has resulted in a tax asset with a value of $70 million in net present value terms to QinetiQ. The acquisition does provide us with opportunities for revenue synergies, predominantly across our existing U.S. business and potentially globally, which have been incorporated into the business case. Thirdly, integration and deliverability. Shawn described earlier that we have a robust jointly developed plan to integrate and deliver the Avantus business case. Steve further elaborated on what we have done by taking a very deliberate and different approach to this integration. We have a solid business case that we continue to performance manage against to ensure that we deliver against the commitments that we have made today. So what does that mean for the combined enlarged QinetiQ? Avantus is a mature organization, which should provide comfort that there is low operational risk. Fundamentally, this acquisition delivers attractive financial characteristics consistent with what you have come to expect from QinetiQ. Whilst we do not expect analysts to update their models yet, this acquisition provides no changes to our previously stated guidance, except an improvement to our revenue growth. Let me take you through our guided financial metrics and what we expect post completion. Revenue growth will improve modestly from mid-single-digit organic growth to mid-to-high single-digit revenue growth due to the growth expected from Avantus. Operating profit will remain consistent within our guidance of 12% to 13% in the mid- to long-term with 100 basis points invested in the short term. ROCE will remain strong at the upper end of 15% to 20%, highly attractive and favorable compared to our aerospace and defense peers. Capital expenditure will remain within the upper end of our guided range of GBP 90 million to GBP 120 million with the Avantus business requiring limited capital expenditure investment. And cash conversion will continue to remain strong. So in conclusion, this is the right strategic acquisition for QinetiQ that grows our global company, in line with our strategy and financial plan to deliver enhanced shareholder returns. And with that, I'll hand back to Steve.

Great. Thank you, Carol. So let me briefly describe the transaction timetable and then summarize before we take any questions. As I mentioned at the start of the presentation, the transaction is subject to U.S. regulatory approvals and customary closing conditions. Over the last 3 years, we have established a highly effective governance model with our U.S. Board chaired by the Honorable Dr. John Hillen, and the SSA with the U.S. government. The effectiveness of our Board and SSA, along with the advanced preparation of our filings gives us confidence that we will obtain the required approvals and complete the transaction by the end of the calendar year. So in summary: the combination of Avantus and QinetiQ transforms our U.S. business and creates a platform to accelerate growth in our customers' high priority segments aligned with the U.S. national security mission. We have a strong and aligned cultural fit with a very talented management team and employee base, which augments our already strengthened U.S. leadership team. And the business case for the acquisition is compelling with enhanced shareholder returns and an effective use of our strong balance sheet. The deal is a strong strategic fit, creates a compelling economic case with high confidence integration, and is a major step forward in delivering our global growth strategy. Shawn, Carol and I will now be happy to take any of your questions.

Thank you, Steve, Carol and Shawn. In order to ask a question, please use the telephone number provided. Please can we ask you to introduce yourself by name and by company name. I'll now hand over to Serge, our operator, for our first question, please.

[Operator Instructions] Our first question comes from Richard Paige from Numis.

Looks a very exciting deal. I guess a couple of things from me. First of all, obviously the business has grown at 10% organic on the top line in recent years as you described. And obviously, you're looking for at least 10% revenue growth going forward. Could you just provide an outline on how that compares with underlying market growth rates, please? And then on contract profile, obviously, that looks pretty broad. Just wondering if you could provide a bit more detail or granularity around the sort of largest contract size as a percentage of sales potentially? And then on margin profile, it looks to be towards the upper end of the sort of levels of activity. Could you just expand a bit more on how you expect to drive the sort of modest improvement you speak about, please?

Okay. Thanks, Richard. Three good questions. So let's take the first one. Yes, I'll make a start and then ask Shawn to sort of comment as well. So you're absolutely right. The business has got a very strong track record, and it's been growing at, at least double-digit margins in -- sorry, revenue growth in recent years. I guess, behind your question, you're getting to confidence in our ability to see that forward revenue growth rate at 10-plus percent margin. And there are -- sorry, revenue growth rate. There are several reasons why we have that confidence. The first thing I'd point to, and I think both myself and Carol referred to it, the teams have developed a very strong pipeline. The pipeline is some $2.4 billion on an equivalent basis to the overall orders pipeline that we share at a group level. And within that pipeline, they've demonstrated great customer focus around the customer set that Shawn has described. And through a combination of strong customer focus, a really strong business development team, good industrial partnering, we have good confidence in that pipeline and their ability to perform, win recompetes, and new awards. Within the pipeline, they've also been following a very similar strategy to what QinetiQ has followed in the recent years. So starting on relatively small contracts, winning and repeating, but progressively building confidence and maturity and focused on larger, longer-term deals. So as they've developed, that pipeline has grown. And to your question about the sort of contract mix, we probably won't go into specific contracts. But what we can describe is that the pipeline is full of several contracts in the 10 million -- or 10s of million class, and more recently has now got some programs in it in the 100 million plus class. So I think it's a combination of the confidence of historic growth, Richard, and following a very similar strategy to focusing on winning larger longer-term contracts. So that gives us the confidence in the growth rate. And that probably sort of blends into both your questions 1 and 2. Shawn, would you like to make some sort of comments to build upon that?

Yes. Great. Thanks, Steve. I echo your comments and agree with the profile of the company thus far. Carol alluded to on contract growth and recompete being very high across their markets, which shows good customer performance, delivery of requirement. And when you look towards the whole of the pipeline, it shows a significant ability for us to continue to grow both in those current customer markets, but also to be able to take those technologies into adjacent customer markets as well. From execution across the pipeline, as Steve alluded to, the organization has continued to invest and expand. The combined organizations together will be able to go across all 3 of the domains that I mentioned to do not only current contracts and grow those contracts they have today, but take on those larger integration, intelligence, surveillance reconnaissance-type programs, which span across the portfolio and require the combined capabilities of both of our current organizations. They're strong in their current experience, they're strong in their first wave of pipeline, and the combined organizations together will be able to take on a bigger mission across the United States intelligence, Department of Defense, and Homeland Security portfolio.

Thanks, Shawn. And maybe the third question around margin, Carol?

Yes. So just maybe an add to the revenue growth from my perspective, Richard, the QinetiQ U.K. cyber and intelligence business has equally performed in this at least double-digit growth, right? So in addition to what the U.S. can do in its own right, I think QinetiQ has the broader capabilities, the scale to actually demonstrate. Those of you that have been following us for a while will have seen that and enjoyed that for the last number of years. So that also gives me confidence that there's a broader family in which we have proven delivery in this. And then specifically on to the question of margin growth, you're right, Richard, that we are seeing Avantus in the last 12 months has delivered 10.8% operating profit, which is very close to our current guided range in the short term. We see some modest margin improvement, and that's going to be driven by us moving along in the value chain. This is a high-quality asset. It provides very high-quality, dedicated solutions for our customer, which can yield a higher margin. So we believe that there's not a lot, but there's some modest margin improvement that is available over the mid- to long-term, which is why I feel confident that we hold our group guidance in the mid- to long-term to the 12% to 13%.

Yes. And if I might just add on to that point that Carol just made, Richard. I think Shawn alluded to investment. So within this case, we are increasing our investment, and that investment will build further capabilities that will support further expansion of the pipeline and support the revenue growth that we've discussed. But it will also support exactly what Carol was saying, which is going up further in the value chain. And this company is a company that operates at a high position in the value chain, hence it attracts the margins that it attracts with the opportunity for a modest improvement that as Carol described. So Richard, I'll give you the opportunity if you want to come back on any of those questions or whether we've answered them for you.

No, that's very clear.

Charlotte Keyworth, Barclays.

I've just got one, actually. Just been listening kind of to the commentary, and you've mentioned the word mature several times and high quality, and it's clearly got a lot of characteristics that QinetiQ holds in terms of cash generation and being asset light. With any kind of large-scale M&A, the integration piece is critical. And with something that's clearly functioning very well already, I'm interested to hear a little bit more about integration, what your thoughts are on that because it's where a lot of the value can either be destroyed or created.

Great. Well, absolutely. I mean, Shawn described quite a lot in her presentation. I might go to you first on it, Shawn, because I think you touched on the critical points. And then I'd sort of like to make sort of a couple of builds on that. But Shawn, can we go to you first?

Sure. Great. And thanks for the question. So first, we do agree that our current platform is quite mature and that the organization has been very deliberate and thoughtful about their acquisitions, the integration of their acquisitions and their processes. So continuing through each of their journey to unlock value along the way. As I mentioned in my remarks, what we see or where our first thought here is to take the combined leadership team between our current QinetiQ U.S. team [ with ] the senior leadership team of Avantus and integrate into a corporate organization, really leveraging some of those key personnel that have both capabilities in the current market, but also can stretch across the whole of the portfolio. The current P&L business will come in as a single business unit and be a direct reporting to myself aligned with our other 2 business units. And we'll be very thoughtful and mindful about how we then take a look at that portfolio, integrate, look across the contract vehicles that now the 2 combined companies will have, and be able to go to market in a much stronger way than before. We also think there's extreme power in some of their best practices. They have an integrated talent management system. They have a different business development cycle component when you integrate the back office with the front office, unlocking the value of their processes, their procedures and tools, but also their people and their culture and the integration of some of where they have continued to grow, have really deep, good customer intimacy, sound business development processes and procedures, contracts and supply chain. So we're excited about how that integration comes in, and we believe will add value immediately as the teams come together, start to look across the whole, really look at best-of-breed across both of the organizations and then integrate that leadership team at our corporate level to be able to unlock the value right off the gate. So a great question on that. Steve, over to you.

Yes. Thank you, Shawn. I mean just to sort of say some different things rather than repeating what Shawn has said. I think one of the things that I was really pleased with through the diligence process is the conversation that we had about integration. Because from a philosophical point of view and a cultural point of view, we were at one with the Avantus leadership team and the way that we thought about how you go about successful integration. And the philosophy is simple to describe it as, number one, putting our employees first and making sure that they understood the logic for the acquisition, the approach to integration, the combination that would come from bringing the companies together. Secondly, by focusing on our customers and remembering that this is all about creating a platform for growth. And then thirdly, looking at how we optimize our systems and processes as an enabler for our employees to deliver for our customer. And Shawn used a phrase during her main presentation around best of breed, and that is very much the philosophy here. We're bringing together 2 companies in the U.S. of similar scale and we're going to be combining them. And I think that, Charlotte, for me, that alignment from a complementary capability and alignment from a sort of a cultural and philosophical point of view, brings a high degree of confidence. Now sitting underneath that, we've developed an integration plan. We have milestones and objectives and targets that we will achieve and deliver. And as we both alluded to earlier, that integration will also be supported by investment. And that investment will go into critical capabilities such as increasing our business development, strategic capture capability, increasing the volume of investment in our internal research and development, so that we're developing new state-of-the-art technologies or tools that we can cross-sell to our customer, as well as optimizing the various systems. So I think we've really thought through the integration from a planning and an organization point of view. But more important to that, I think we've got the right philosophy, mindset and culture between the teams to make this a truly successful combination. And if I may just come back to the word mature and high quality. I think it is a really important point, Charlotte, of why this acquisition is so different to QinetiQ's distant history. This is a high-value asset operating in frontline high-value segments in the U.S. And that's why it's attracting high margins. So it's a really great asset for us to build this platform to drive growth. But Charlotte, I'll give you the opportunity to come back whether that triggers any further question or whether we've answered your question.

That's really interesting. I've actually got one more question for Carol, if I may?

Sure.

Just in terms of leverage, so we're at 1.3x when the deal completes, and [ it is ] going to rapidly deleverage to 1x at the end of year 1. I just wondered, in terms of medium-term guidance, I mean, now we've done a transformative deal, where do you think the right balance sheet is for QinetiQ going forward? I mean, will we return to a net cash position eventually, given the cash generation from the combination of the 2 entities? Or can you see kind of returning to the level we're at today?