Thank you very much. Good morning, everyone, and thank you for joining this BAE Systems Webex. Today on the call, we have Charles Woodburn, Chief Executive, Brad Greve, incoming Group Finance Director, and Tom Arseneault, President and incoming CEO of our Inc. business, and the investor relations team of myself, Martin Cooper, and Sejal Malde. I should remind everyone, we're in our close period before our preliminary results on the 20th of February, so today's presentation and Q&A will only be on the acquisitions we have announced this morning. By way of housekeeping, there is a slide presentation on the website, which we shall run through, and the slides will be interactive on the Webex. We will take your questions at the end in the usual manner. I will now hand over to Charles. Charles?
Thanks, Martin. Good morning to you all. I'm delighted to announce two acquisitions this morning by BAE Systems, both of which are strategically attractive, falling within and complementary to the sweet spot of our Electronic Systems portfolio. Both deliver a financially compelling case. The first, valued at a gross $1.925 billion, is the leading military global positioning systems business from Rockwell Collins. The second, for a gross $275 million, is a leading airborne radios business from Raytheon. As asset deals, both acquisitions come with significant associated tax benefits, as outlined on the slides and covered in more detail by Brad later. These two acquisitions represent a golden opportunity to purchase high-quality, technology-based businesses with market-leading capabilities and long histories of leading innovation in their respective fields. Both have come to market only as a result of regulatory considerations resulting from the Raytheon-UTC merger process.
They are fully aligned with our technology development strategy and focus on the areas of highest priority defense spending in the largest defense market in the world. The strategic and financial rationale for both is compelling, and they will enhance the group's opportunity for continued growth in Electronic Systems. On completion, they will be run by and form part of our Electronic Systems division. Both businesses have strong growth outlooks driven by a close alignment to the long-term U.S. defense strategy, Congressional mandates to upgrade existing capabilities, and a presence on a substantial installed base of products and platforms in the U.S. and with allied nations. The businesses have strong and sustainable margins and are immediately accretive to cash and earnings. These are low risk, high-quality assets with exceptional discriminating technology and will accelerate our existing strategy. Both opportunities are perfectly aligned in their strategic fit.
I am delighted they have emerged at a time when my confidence of growth in our business has improved significantly, thanks to our strong order backlog and exceptional program visibility. Improved operational performance is now being delivered, and that underpins our confidence in long-term cash generation, as outlined by our three-year cash guidance. In addition, we have improved U.K. political clarity, and the group has a robust balance sheet. It is against this backdrop that I'm confident about making these moves, and I will be equally clear that these acquisitions do not change our mindset or clear focus on delivering operational performance, driving competitiveness, and enhancing technology innovation.
I will now give an overview of the larger of the two businesses and why it is such a compelling addition before handing over to Tom to expand more on the details of both. Brad will cover the financials and growth outlook. We shall be very happy to take your questions. The military GPS business we are acquiring is a long-standing leader in mission-critical GPS receiver technology solutions. The business operates across a broad base of customers and platforms and is well-positioned in highly attractive U.S.-focused defense electronics and weapon systems end markets. It has fielded over 1.5 million units and currently has a presence on over 280 platforms and is the provider on the two highest volume weapons programs for the U.S. Air Force.
The business is developing the next generation M-code GPS technologies for the U.S. military, and from its installed base, is well-positioned for the next generation of upgrades. The business will also be highly complementary to our priority growth area of precision-guided munitions in our Electronic Systems division, an area expected to play an increasingly critical role in military operations. The growth outlook is strong, with a 10% plus CAGR over the next four years, which is underpinned by U.S. Congress having mandated M-code for all military GPS user equipment after October 2020 and is clearly an area of priority investment to address evolving threats. The financial track record is excellent, and the business has attractive and sustainable margins and is highly cash accretive.
Tom can give greater color, but the business complements both BAE Systems' defense electronics capabilities and pan-domain systems presence, presenting significant opportunities for our respective product lines in this growth area. Finally, we see a great cultural fit with our Electronic Systems business and a low integration risk, and we look forward to welcoming the employees into BAE Systems. With that, I'll hand over to Tom, who led the extensive due diligence process, to give greater detail on why we are so excited to be acquiring these two businesses. Over to you.
Thank you, Charles. First, let me say that having led some of the businesses and then all of the Electronic Systems sector over the better part of 15 years before joining the U.S. headquarters team, I share Charles' view that this is a very unique opportunity to acquire a highly respected, high-performing franchise business specializing in an area of increasing importance to military systems around the world. Rockwell Collins, now a division of United Technologies, is the top provider of military GPS receivers in the market and offers industry-leading technology underpinned by an extensive portfolio of patents built up over more than 40 years. The business has a massive installed base with over a million and a half devices fielded on some 280 platform types globally. Platforms from unmanned aerial systems to combat vehicles, from missiles to transport aircraft.
As Charles mentioned, the exciting potential in this business stems from its leading position in the mandatory upgrade of these systems, with delivery starting in 2020. When the U.S. Congress issued the National Defense Authorization Act of 2011, they signed into law the requirement that future GPS user systems would feature a new so-called M-code technology, M for military. Going forward, millions more of these new M-code military GPS devices will need to be manufactured and delivered to both upgrade existing platforms and enable new ones. This business aligns well with the U.S. national defense strategy, and as such, supports a number of our own strategic focus areas, including precision guidance and autonomy, areas which will be increasingly dependent on secure and resilient global positioning data to perform the missions of the future.
The business is headquartered in Cedar Rapids, Iowa, and we look forward to welcoming some 675 highly experienced and qualified employees to the BAE Systems team. To ensure as smooth an integration as possible with minimal disruption, we have planned for a modest facility investment to stand up a new BAE Systems presence in the Cedar Rapids area, to which we'll transition the business over time. The strong 40-year legacy of this business dates back to the 1970s, to the very birth of the global positioning system, when then Rockwell was first to track a live military GPS signal from space. Their innovations continue through to the present day and are manifest in the new high-performing, low size, weight, and power M-code products.
I can't emphasize enough how strong the technology core of this business is and how much of a competitive discriminator that provides for the portfolio of products we're acquiring. Hundreds of patents and trade secrets protect the intellectual property embedded in the high-tech devices that make up these systems. Those devices include custom integrated circuits designed to support the most advanced M-code technologies. Add proven software algorithms, and these modules provide unparalleled features such as anti-jamming and anti-spoofing for military systems across the spectrum. These features are important as our increasingly sophisticated adversaries seek to deny critical position information to our military systems. From here, I'll turn it over to Brad to share the financial aspects of the opportunity.
Thanks, Tom. The acquired GPS business has enjoyed significant revenue growth over the last three years and commands the top position in the GPS receiver market segment. Future growth in the next three years will be underpinned by the congressional mandate for military GPS equipment to be upgraded to the M-code standard. Only three companies are allowed to carry out this mandate, which will require the upgrade of over 1.5 million devices. Further growth is expected in the high volume precision-guided munitions market, where there is a healthy and secured pipeline with the customer base. As you can see from the chart on the right, the GPS business enjoys high-quality margins, largely driven by the commercial pricing model, together with the scale that coincides with its market position. As these margin drivers will be sustained, we expect these highly accretive EBITDA margins to continue.
We expect the acquired GPS business to continue its track record of high free cash flow generation, which has consistently approached or exceeded 100% of after-tax operating profit. The enterprise value of the transaction is $1,925,000,000. It's important to note that since this acquisition is an asset purchase, BAE Systems will benefit from a tax deduction with a present value of around $365 million. This stems from the U.S. tax treatment of asset purchase transactions, where the difference between the purchase price and the acquired assets is deductible on a straight line basis over 15 years. Netting this value from the purchase price results in an implied net multiple of 12 times 2020 EBITDA, and that's 15 times on a gross basis. The acquired GPS business will be immediately accretive to earnings per share, margin, and cash, with a solid backlog and growth projection as outlined previously.
To emphasize the strong value case, we expect return on invested capital to exceed cost of capital by the third full year of ownership. In terms of financing, the transaction will be debt funded. We have a committed bridge financing arrangement already in place. We're strongly committed to maintaining our investment-grade credit rating, and we expect this transaction to fit within the required parameters. We should note that this transaction is subject to customary regulatory approvals and conditions and is of course, subject to the final closure of the Raytheon-UTC merger. I'll hand it back to Tom to talk a little bit about the radio business.
Thank you, Brad. I'll turn now to the second and smaller of the acquisitions we announced today. The Raytheon Airborne Tactical Radio portfolio is another well-positioned, highly performing business with a strong future. We start again with a very broad and enviable installed base, with over 70,000 radios populating rotary wing and fixed-wing aircraft around the world. This base complements BAE Systems' own radio footprint and adds additional software-defined radio variants and sophisticated communication waveforms to our offerings. The strong future centers around U.S. defense and NATO requirements for more modern cryptographic and anti-jamming features, which are driving significant demand for upgrades. These upgrades represent excellent business opportunity as existing radios will be replaced with more capable hardware and software in the coming years. For example, in February 2019, the U.S. Army awarded the business a $406 million contract to begin production and delivery of AN/ARC-231A radios.
The modern replacement for the venerable AN/ARC-231 Skyfire, which provides secure communications for Army helicopters such the AH-64 Apache and the CH-47 Chinook. Further into the future, as autonomous systems and manned-unmanned teaming become more prevalent, the need for secure, reliable communications will increase even further, and this business will help us to better participate in that growth. It's that kind of alignment with the U.S. national defense strategy and our ES sector's priorities for the future that make this business such an attractive addition. Like the military GPS business, this radio portfolio is also founded on a solid base of well-defined intellectual property and offers the added benefit of bringing an indigenous cryptography capability to Electronic Systems. With locations in Fort Wayne, Indiana, and Largo, Florida, the business will transfer circa 100 employees to BAE Systems to lead the franchise forward.
Before I hand it back to Brad to touch on the transaction financials, let me say that reflecting on the two businesses we're discussing today and having worked with and around them for decades, I could not be more delighted to have the chance to add such respected market leaders to the BAE Systems portfolio. Brad?
Tom, the enterprise value of the radio business is $275 million. As this too is an asset purchase, there's a tax benefit with a present value of around $50 million. The net acquisition price results in a multiple of 10x estimated 2020 EBITDA or 12x on a gross basis. The radio business will enjoy high growth over the coming years due to its high incumbency position of installed radio units and the need to upgrade to new encryption and anti-jamming standards. Like the acquired GPS business, the radio business is also immediately accretive to EPS margins and cash. To underline the value case, the ROIC will exceed our cost of capital in the first full year of ownership. In terms of financing, the transaction will be funded from existing cash on hand.
The closure of this transaction is also conditional upon the customary regulatory approvals and conditions, and is of course subject to the final closure of the Raytheon-UTC merger. To summarize, these transactions are a one-time opportunity to acquire high-quality assets. They align perfectly with the strategy. They're both cash, earnings, and margin accretive in the first year. Collectively, we have ROIC in excess of our cost of capital by the third full year of ownership. Charles, over to you.
Thanks, Tom and Brad. Before we move to questions, I wanted to reiterate a couple of important points. Our strategy remains consistent. I'm certain we have the right strategic priorities to drive this company forward, and we are now seeing the results of this. As you've heard from Tom and Brad, these are highly attractive businesses which enhance our portfolio in the U.S., the largest global defense market. They are a perfect fit for Electronic Systems, our highest performing division. The financials are very strong, with a visible revenue growth outlook, sustainable margins, and high cash conversion. In short, these are golden opportunities. From a balance sheet perspective, we remain committed to maintaining our investment-grade credit rating, and the capital allocation policy for the group remains unchanged. We are focused on enhancing our financial performance and delivering sustainable growth in shareholder value, which we are confident these acquisitions will enhance.
Thank you. Will now be very happy to take your questions.
If you wish to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. To cancel your request, please press the hash key. Once again, to ask a question, please press star one on your telephone keypad. Your first question comes from the line of Robert Stallard from Vertical Research.
Thanks so much. Good morning.
Morning.
A couple of quick questions for Tom, please. First of all, on the GPS business. Historically, this has been quite sensitive to op tempo of U.S. ground forces. How different is this business today versus what it was like in the past?
Thank you, Rob. Given the nature of the mandate to upgrade the GPS technology into this new M-code, there is a congressional push in order to change out the existing SAASM GPS for this new M-code. All the new products from missiles to ground vehicles, radios, et cetera, will need to go through this upgrade in order to field that technology for the future. We see that as excellent growth opportunity for this business.
It's probably tough to answer, but can you size how much of the revenues today are linked to the OCO versus the base budget?
Yeah, I think that's a difficult question to answer specifically, Rob, but you can imagine that many of the systems that are in the midst of being manufactured and that will be over the course of the next couple of years with all of the backlogs that have grown through the defense budget upturn, that these will need to be using these new systems. They'll start shipping in 2020. Again, we see that as an excellent growth opportunity for the business.
Okay. Secondly, on the radio business. We've seen moves on the ground side to finally refresh tactical radios. Are you seeing any sign as you move into the airborne arena that the Army or the Air Force are also making similar steps there, and you're having to invest for that for the future?
Yeah, absolutely. In fact, I mentioned earlier this GBP 406 million IDIQ contract for the upgrade of the ARC-231 radios. These are rotary wing Army radios, and that program will play out over the course of the next five years. We think there are similar upgrades in the making for radios on some of the other platforms.
Will this require a step-up in self-funded R&D, or is that already in your margin expectation?
It's already built in. In fact, the R&D that is associated with the ARC-231 has already been expended, and we're heading into production, or will be.
Brilliant. Thanks, Tom.
Your next question comes from the line of Jaime Rowbotham from Deutsche Bank.
Morning, gents.
Morning, Jamie.
Three quick ones from me. Firstly, how have you thought about the scope for any synergies, perhaps more on the revenue than on the cost side? Secondly, how should we think about integration costs? I think you mentioned the modest facility investments of the GPS business. Thirdly, by my estimation, financial leverage will go up to around one times net debt to EBITDA, or 1.5 times if we include the capitalized operating leases under IFRS 16. Brad, is this a more appropriate capital structure for the BAE group, do you think? Thanks.
The first couple, why don't you do, Tom.
Sure
Brad, you can handle the one on leverage.
Yeah. As for the nature of synergies, some of the topics I mentioned in the earlier discourse around the move in the national defense strategy toward autonomous systems, toward more and better secure precision across a number of different areas, play very well into BAE Systems' strategy. One of our focus areas has been precision-guided munitions in the past. We're also very interested in autonomy. We see some of these underlying technologies, both on the radio side and on the GPS side, as fueling our potential for growth there.
I think, as you consider some of the things our adversaries are working on in order to disable our positioning information, that these sorts of upgrades are exactly what is necessary and will help not only our precision-guided munitions, but as a merchant supplier, that of the industry as well, as Rockwell Collins and UTC have done now for decades.
On the integration costs, do you want to say a couple words?
Yeah. Go ahead, Brad.
Just important to note on the synergies, the way we valued this transaction, we didn't price in any of the synergies. That's important to note. We do feel that there's significant upside that we can realize from these. On the point of leverage, Jaime, just to reaffirm, we are committed to maintaining our investment grade, as Charles mentioned. I think our underlying business plan had a nice strength to it regarding cash flow, which has a natural de-leveraging effect. Then if you look at the incremental EBITDA that we're taking on from these businesses, it's easily three times the incremental interest on an after-tax basis. These actually look pretty good in terms of our leverage, and you're about right on the net debt to EBITDA ratio.
Integration. I think on integration, yeah, just to say, as I mentioned, that we expect a modest investment in a facility in the Cedar Rapids area in order to transition that business. Beyond that, this is a very straightforward integration. It fits very well into the Electronic Systems sector. These businesses are relatively intact. The geography is non-complex. They're performing well. Our approach to this will be straightforward, and we think the integration will go very smoothly. Brad, you got anything, Jaime?
That's perfect. Thank you.
Your next question comes from the line of Charles Armitage from Citi.
Good morning. Three ones. First of all, a couple of quick financials. What's the depreciation charge, and what do you believe your WACC is?
We're not going to disclose the WACC. Just also understand that we use a pretty significant hurdle rate for our valuation on this. We're confident in our model, given that hurdle rate. On the depreciation, you can assume that it's in line with CapEx. Apart from some initial integration on the facilities, we expect that to be neutral.
It'll be about 1%-2% on both, on average.
I'm sorry?
Small. It'll be about 1% to 2%, Charles, on average.
Okay, great.
The transaction's pretty small.
Great. Then sort of tactical ones. How long does the M-code upgrade last, and then what happens after that? Does everything fall off a cliff? Related, I guess the other one is with a whole chunk of the business going to weapons, that's the working definition of built-in obsolescence, as hopefully they go bang. What's the annual usage of these things?
That's a detail that probably wouldn't share if we had it. We do have the knowledge that 1.5 million of these have been fielded already. To your point, things that go in munitions are consumable, you can imagine that generates some demand as well. All new devices going forward will require this M-code technology. It's a very healthy business ahead. In terms of the obsolescence, the prior generation, so-called P(Y) code or SAASM technology, has been in place for over a decade. This M-code is just being fielded now, we think it has a long and healthy future.
The point I'm trying to understand, is the growth, the 10% plus growth you're seeing, is that coming because there's a huge bow wave of all these old part things that you need to replace? What happens after that? To me, it's quite a fundamental question.
Yeah, fair enough. That growth, and in fact, in order to satisfy that demand, that will play out again over the course of the next 5 to 10 years. This is a healthy business where we see good strong growth for the foreseeable future.
Excellent. Thank you.
In our models, of course, we expect high growth rates in the first few years because of the M-code process. Thereafter, we see revenues falling in line with our classic ES business.
We're still growing quite a bit.
Yeah.
Okay. Finally, sort of a strategic question. On all acquisitions, how can BAE justify paying more for this than anyone else? I.e., what does this give BAE that nobody else could get?
I'll start and then hand over to Tom. It really is, as I said, a golden opportunity. It's a perfect fit for our Electronic Systems business, which as you know, is one of the crown jewels of the group. We've got a very strong management team, and I think we've got great confidence about integrating this and continuing that growth trajectory in Electronic Systems. Do you want to say a bit more?
I think you said it, Charles. I think that the fit is very, very strong. Again, this was a lot about making sure we provided a path to closure to have these businesses find new homes in the wake of the UTC Raytheon merger. This represented a very rare and unique opportunity for us, and we think our ability to provide a complementary home for these businesses and to do so in the process that's played out over the course of the last month or so with speed to closure, played a significant role in this outcome.
While we didn't price synergies in, there are real synergy upside.
Upside, right?
from our perspective.
That's right.
Excellent. Thank you very much, Charles.
Thank you.
Your next question comes from the line of Nicholas Cunningham from Agency Partners.
Good morning, gentlemen. A set of capital allocation questions really, I suppose. You talked about the fact that the existing free cash flow would reduce the debt, or even taking that cash eventually on current trends. Inverting that a bit, does that imply that the priority will be to pay off this debt in terms of how you use your £400 million to £600 million of net cash flow every year? Second question, that I think was to be spent on organic opportunities internally or technology bolt-ons and so on. Will you still be able to do that post this deal, or will you be constrained to some degree? Third technical one, do we assume the pension trustees are happy with this and there isn't a quid pro quo in terms of any accelerated payments? Final question, do you have an idea about when this might close? Thank you.
Well, I'll maybe start and then hand over to Brad. Our capital allocation policy, as I said already, remains unchanged. While certainly the size of these deals, the point I would make is we've talked about doing bolt-ons, and a deal of this size obviously does consume some of our firepower for certainly the immediate future, I would say, at least. I've been in this business three years. Tom has been in the Electronic Systems for his entire life. These are opportunities that we just could not afford to miss. That's the absolute reason that we went for them. Going forward, fundamentally, our capital allocation policy remains unchanged, and I think we will still look for the small bolt-ons as they go.
Obviously, as we generate the free cash, and we've made a very strong commitment that we are confident on delivering around the free cash generation, that over time, will ultimately pay down the debt. Do you want to say any more on that, Pete?
Yeah.
Brad, sorry.
I think that's right. I think the underlying business plan on a stand-alone basis had a natural de-leveraging effect, and as I mentioned, these acquisitions are accretive to free cash flow. I think regarding your question on the pension trustees, I would point again to the fact that these are earnings margin and cash accretive, and I think the pension trustees are happy to see our business growing in this way.
The fundamental strength of the governance of the business, which is what they're always concerned about. Martin, have we missed anything?
Nick, just on the R&D investment point and organic investment, we expense all our R&D. It's in our earnings guidance. You know that we're looking to increase that over sort of circa GBP 100 million over the next three years. That's been our consistent message. That will continue, and we'll continue to invest in these businesses we're acquiring appropriately as well.
Thank you. A close date, any idea?
Brad, do you want to?
Yeah, I think the main precondition really is the closure of the United Technologies and Raytheon transaction, and they publicly announced that they expect that the first half of 2020. Our transaction will be contingent on that.
Thank you.
Your next question comes from the line of Sandy Morris from Jefferies.
Morning, Sandy.
Top of the morning, gentlemen. Here, we're going to reduce this to my usual agricultural level. I read, and I'm sure you just said it, this M-code thing has barely started. As far as I know, the U.S. Air Force were planning on getting this thing working only this year. Is that right?
Yeah, that's right, Sandy. In fact, Rockwell Collins and now UTC, they just got certification middle of last year. You have to go all the way through this Global Positioning Systems Directorate at the U.S. Air Force Space and Missile Systems Center. That certification is something to be proud of, and will fuel this business for some years to come. Deliveries are supposed to start in 2020. Perfect timing.
Right. If I understand it correctly, Collins and L3 have all had a fair amount of difficulty in getting this stuff ready. It's been a challenging overall program, this new GPS thing. You're pretty happy that the development risk is now behind us, yes?
Yeah, I think with that certification from the Air Force, this has opened the door to start shipping these devices as they come out of the factory here in 2020. Yeah, there was some difficulty in the lead up, and the requirements are very stringent. As I mentioned, our adversaries are doing everything in their power to find ways to deny this kind of positioning information from our systems. You can imagine the strategic advantage that would provide to them. The U.S. Air Force went to great lengths to ensure the right kinds of features would be embedded in this technology, to prevent that from happening and to give us that advantage for years to come.
Right. If we're thinking about whether this is a five-year or 10-year thing, I thought Lockheed got a contract for 22 GPS satellites that might turn into 32. I don't think they could have launched more than a couple yet, no?
I don't know the answer to that, Sandy, but I do know this. This M-code technology is something that will enable these systems that we talk about. As these satellites make their way up there, and populate a constellation that will provide the new Global Positioning System, we'll be ready to accept that signal.
It's a bad way that has long legs, basically.
Yeah, I guess that's a good way of saying it.
Yes. I can see one immediate synergy, just to make sure that I'm going off on the right tracks, because I'm a bit prone to wandering off. As far as I can see, you're really good at power generation, power management for the things Electronic Systems has to do, and this thing could, in theory, involve quite a lot of power if it has to hop around between the satellites. I can see one obvious great big synergy, I think. Is that right?
Yeah, Sandy, just to be clear, we're not involved in the satellites themselves at all. I'm sorry, maybe I should have been clear.
No, no.
Our system, these GPS receivers show up in all of the devices that will depend on those satellites and the signals that come from them. GPS receivers are ubiquitous. They're everywhere. They're in your cell phones, these are the commercial versions. The military versions of these that show up in military equipment that make use of that GPS constellation in order to find position, that is the business that we're in. It's referred to more commonly as GPS user devices.
Yeah.
We're not involved on the satellite side. We're involved in all of these devices that take advantage of those satellites.
Where Sandy may absolutely be right is the power requirement for the end user is a key discriminator of these technologies.
Sure. Right, low power.
Low power, and indeed, some of the work that we've been doing with small form factor EW also needs the low power requirements, for drones and so on and so forth. I think.
Synergy in the way.
Synergy there. I think we agree with you there, Sandy.
Right. Thanks for bailing me out. Tom was making me look like a complete chump. I'll leave you in peace now, gentlemen.
I'm so sorry.
Thanks, Sandy. I think we have one more question. Is that right, Sejal? Then we'll probably draw it to a close.
Yes. Your final question comes from the line of Harry Breach from MainFirst.
Yes. Thank you. Thank you very much. Good morning, all. Can I ask just a couple of hopefully very simple ones? For both the GPS and the radios business, could you possibly give us a sense of the mix of the revenues between fixed price and cost plus business, and whether that's expected to change over the near or medium term? Second question, is there any impact on your special security arrangement of these acquisitions? Will there be any sort of change in oversight?
I can answer for the latter. None at all. For the former, a fixed price. Any of you guys want to comment on that? I'm not sure we have that.
On the radios business, it's about 75% fixed price, perhaps even a little bit higher. On the GPS, it's a different pricing model that we use. It's normal pricing. I can talk you through it, Harry, if you want.
Okay, Martin. I might take you up on that. Thank you. Thank you, guys.
Regan, I've just been told we have one more question just come in, and then we will call it a day.
Yes. That question comes from the line of Tristan Samson from Exane.
Yes. Good morning, everyone. Thank you for taking my question. Tristan from Exane. Two quick technical question. The first one, can you help us understand how your group tax rate would evolve post the integration, all things being equal, because there's a very high tax shield that we should get on the deal? The second one is, if you could give us a kind of pro forma contribution to your full year free cash flow, considering the fairly high operating cash flow we should get from these assets, plus the tax shield and the net interest expense. Should we get something in the range of GBP 60 million-GBP 70 million for a full year, or could it be higher than this? Thank you very much.
Mike, do you want to do this?
The ETR won't really be materially changed. The tax benefit is a fiscal-only structure. It doesn't affect the ETR, though we do get a cash deduction relative to the amortization of that goodwill. The cash flow accretion over the next four full years will be about 6%, on average, just to give you a ballpark there.
That's very useful. Thank you very much.
Very good. Thank everybody for joining. Martin, do you want to close, or? Thank you all. We can do follow-ups, obviously, as the day progresses, but thank you for joining, and just to reiterate again how excited we are about both of these two deals. Thank you.