More molehill than mountain Sales were up 6.8%, or 4.3% on a constant currency basis. Underlying EBITA of £999m increased by 9% and implies an H2 bias of 51% vs 55% last year. Underlying earnings per share increased by 11% to 21.9p, excluding the one-off tax benefit. Operational improvements on a number of fronts (ES and Air). Focus remains on Paladin, where challenges remain. There is a £25m restructuring charge in Applied Intelligence as part of the strategic review on UK commercial cyber. HY results underpin the full-year EPS guidance, which was reconfirmed. The order backlog was down slightly as long-term support contracts in Air traded out. The US had a book to bill of 1.1x with all 3 sectors being over 1x. The KSA position is ‘being managed’. Improved net debt guidance; 3-year FCF target reiterated The HY net debt position at just under £1.9bn is better than expected. The improvement is due to timing on Qatar with slower spend to suppliers and accelerated Typhoon deliveries. The group now expects FY net debt to be broadly unchanged from year-end. We expect consensus net debt to improve from c. £1bn to c. £900m. Moreover, the 3-year cash guidance of in excess of £3bn is unchanged. Valuation – attractive CY20e FCF yield of 6.8% Our estimates are unchanged as we were already at the lower end of the net debt range. FY19E PER of 12.1x (FY20E: 11.5x) and an EV/EBIT of 9x (FY20E: 8.5x). FY19E FCF yield of 4.3% (FY20E: 6.8%) and dividend yield of 4.2% (FY20E: 4.4%). An encouraging set of H1 results with the shares trading at the attractive end of their historic 12-month forward FCF yield range, in an environment where we favour defence exposure.