REG - BAE SYSTEMS PLC - Half-year Report
28/07/2022 07:16
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RNS Number : 0000U BAE SYSTEMS PLC 28 July 2022
This announcement includes inside information relating to BAE Systems plc.
Issued by:
Martin Cooper, Investor Relations Director
BAE Systems plc, London
2022
BAE Systems plc
Half-yearly Report 2022
Results in brief
Financial performance measures as defined by the Group(1) Financial performance measures derived from IFRS(2)
Six months ended Six months Year Six months ended Six months Year
30 June 2022
ended
ended
30 June
ended
ended
30 June
31 December 2021
2022
30 June
31 December 2021
2021
2021
Sales £10,581m £10,035m £21,310m Revenue £9,739m £9,339m £19,521m
Underlying EBIT £1,112m £1,028m £2,205m Operating profit £1,028m £1,303m £2,389m
Underlying earnings per share Basic earnings per share 19.6p 31.3p 55.2p
excluding one-off tax benefit (2021 only)(3) 24.5p 21.9p 47.8p
including one-off tax benefit (2021 only)(3) 24.5p 24.8p 50.7p
Net cash flow from operating activities £493m £623m £2,447m
Free cash flow £123m £461m £1,864m
Net debt (excluding lease liabilities) £(3,135)m £(2,745)m £(2,160)m Order book £42.5bn £35.5bn £35.5bn
Order intake £17,985m £10,582m £21,458m Dividend per share 10.4p(4) 9.9p(4) 25.1p
Order backlog £52.7bn £44.6bn £44.0bn Group's share of the net post-employment benefits surplus/(deficit) £0.9bn £(2.4)bn £(2.1)bn
Charles Woodburn, Chief Executive, said: "Trading in the first half has been
in line with expectations delivering strong order intake and good operational
performance.
"Our diverse portfolio, together with our focus on programme execution, cash
generation and efficiencies are helping us navigate the current macroeconomic
challenges and position us well for sustained top line and margin growth in
the coming years. We see further opportunities to enhance the medium- and
long‑term outlook as our customers commit to increased defence spending to
address the elevated threat environment.
"The positive outcome of the UK pension triennial review, along with our
performance and confidence in the outlook enable us to maintain our guidance,
continue to invest in our business and progress our ESG agenda whilst
increasing returns to our shareholders.
"Good operational performance, execution on our strategy and confidence in the
outlook enables us today to announce a 5% increase in the interim dividend as
well as initiating a new, three-year share buyback programme for up to
£1.5bn."
Guidance for 2022
The Group's full year 2022 guidance across all metrics is unchanged from that
provided at the Preliminary announcement on 24 February 2022, which was
provided on the basis of an exchange rate of $1.38:£1 for the year.
· Sales
+2% to +4% (2021: £21,310m)
· Underlying EBIT +4% to +6% (2021:
£2,205m)
· Underlying EPS(3) +4% to +6%
(2021: 47.8p)
· 2022 Free Cash Flow (FCF) >£1bn
· Cumulative FCF 2022-2024 >£4bn
Should the current dollar rate persist, this will be a tailwind to earnings
with sensitivity to EPS being around 1 pence for every 5 cent movement.
The guidance is based on the measures used to monitor the underlying financial
performance of the Group. Reconciliations from these measures to the financial
performance measures derived from International Financial Reporting Standards
for the six months ended 30 June 2022 are provided in the Group financial
review on pages 12 to 18.
Financial highlights
Financial performance measures as defined by the Group(1)
- Sales increased by 2.8% on a constant currency basis(5) to £10.6bn.
- Underlying EBIT of £1,112m increased by 4.4% on a constant currency
basis(5).
- Underlying earnings per share increased by 11.9% to 24.5p(3),
excluding the impact in 2021 of the one-off tax benefit. The Group's
underlying effective tax rate for the first half of the year was 19%.
- Free cash inflow of £123m (2021 £461m inflow, including £250m
receipt in respect of the Filton and Broughton site disposals).
- Net debt (excluding lease liabilities) at £3,135m (£2,160m at 31
December 2021).
- Order backlog of £52.7bn (£44.0bn at 31 December 2021).
Financial performance measures derived from IFRS(2)
- Revenue increased by 4.3% to £9.7bn.
- Operating profit decreased by 21.1% to £1,028m.
- Basic earnings per share decreased to 19.6p (2021 31.3p).
- Net cash inflow from operating activities of £493m (2021 £623m
inflow).
- Order book of £42.5bn (£35.5bn at 31 December 2021).
Dividend
The directors have declared an interim dividend of 10.4p per share in respect
of the half year ended 30 June 2022. This dividend will be payable on 30
November 2022. The directors have also approved a new share buyback programme
of up to £1.5bn over the next three years, which will commence immediately.
Post-employment benefits
The Group's share of the accounting net post-employment benefits obligations
has improved by £3.0bn moving from a deficit as of 31 December 2021 of
£2.1bn to a surplus of £0.9bn, which is presented after deducting
withholding tax which would be levied prior to the future refunding of any
surplus.
1. We monitor the underlying financial performance of the Group using
alternative performance measures. These measures are not defined in
International Financial Reporting Standards (IFRS) and, therefore, are
considered to be non-GAAP (Generally Accepted Accounting Principles) measures.
Accordingly, the relevant IFRS measures are also presented where appropriate.
For alternative performance measure definitions see glossary on page 9.
2. International Financial Reporting Standards.
3. A one-off tax benefit of £94m was recognised in 2021, in respect
of agreements reached regarding the exposure arising from the April 2019
European Commission decision regarding the UK's Controlled Foreign Company
regime. Growth rate disclosed excludes the impact of the 2021 one-off tax
benefit.
4. Interim dividends declared (see note 7).
5. Current period compared with prior period translated at current
period exchange rates.
Operational and strategic key points
Ukraine
- Closely engaged with our global customers to provide on-going support
wherever requested.
- Delivering on programme specific mission critical requirements of our
customers.
COVID-19
- Kept an agile and flexible business response to the ever-evolving
situation.
- Focus remained on employee safety and well-being whilst maintaining
delivery on our customer commitments.
Group Portfolio actions
- UK Triennial pension review completed.
- Acquisition of Bohemia Interactive Simulations (BISim) completed in
March.
- Agreement signed in July for the sale of BAE Systems' financial crime
detection business from Cyber & Intelligence, with completion expected in
the next few months.
- Reflecting the changes in operational reporting lines effective from
the beginning of the year, the BAE Systems Australia business has moved from
being reported in the Air segment to the Maritime segment. Additionally, the
Group has established a new Digital Intelligence business, bringing together
the non-US digital and data capabilities to further strengthen how we deliver
these services and capabilities to our customers. Digital Intelligence is
reported within the Cyber & Intelligence segment.
Electronic Systems
- Cumulatively, over 1,100 electronic warfare systems have been
delivered on the F-35 programme.
- Deliveries continue of next-generation EW Eagle Passive Active Warning
Survivability System to support upgrade of US Air Force F-15 platform and
testing on F-15E and F-15EX test aircraft.
- Awarded $176m (£145m) for Airborne High Frequency Radio Modernization
programme.
- Selected to design, test and supply energy management components for
GE Aviation's megawatt class hybrid electric propulsion system supporting
NASA's Electrified Powertrain Flight Demonstration project.
Platforms & Services
- M109A7 programme is consistently delivering at full rate production
levels and received a $299m (£246m) contract.
- Deliveries of all five variants of Armored Multi-Purpose Vehicles to
the US Army continue.
- Amphibious Combat Vehicle deliveries to US Marine Corps continue, with
design and development under way for new mission variants.
- Bradley vehicle upgrade work continues on contracts for 459 vehicles.
- BAE Systems Hägglunds is ramping to perform on multiple contracts for
CV90 and BvS10.
- CV90 wins Slovakia's competitive evaluation for its Infantry Fighting
Vehicle programme.
- US Ship Repair profitability was significantly impacted by the
COVID-19 pandemic, but continues to recover.
Air
- Production on F-35 is at full rate levels. 74 rear fuselage assemblies
have been completed in the period.
- The Qatar Typhoon and Hawk programme is progressing well. The first
Typhoon deliveries will commence in the second half of 2022.
- Work continues on the Typhoon programme and the production programme
has been extended further following the award in June of 20 further aircraft
for Spain.
- The future electronically scanned European Common Radar Solution
continues in line with the Typhoon plan.
- The sector continues to work closely with industry partners and the UK
government to continue to fulfil contractual support arrangements in Saudi
Arabia.
- The Future Combat Air System (FCAS) programme continues as anticipated
with the initial Concept & Assessment Phase contract underway across
national and international partners.
- Saudi British Defence Co-operation Programme five-year renewal support
funding agreed.
Maritime
- £2.5bn of further contract funding awarded as part of Delivery Phase
3 for the Dreadnought programme.
- New Submarine Build Capability contract maintains BAE Systems' role as
the lead for the design and build of nuclear submarines within the UK
submarine enterprise.
- The Submersible Ship Nuclear Replacement (SSNR) programme has moved
into its Functional Design phase.
- Ongoing support to the Royal Navy's Portsmouth-based flotilla and the
operation of HM Naval Base Portsmouth under the UK Ministry of Defence's
Future Maritime Support Programme, including support to the UK's two aircraft
carriers.
- The Hunter Class Frigate programme in Australia continues to make
strong progress through the prototyping phase.
- HMAS Toowoomba, the fifth ANZAC Class frigate to move through the
ANZAC Mid Life Capability Assurance Programme (AMCAP) was returned to the
Australian Navy following successful completion of the dry production phase of
AMCAP.
- Mobilisation of the Challenger 3 and Mechanised Infantry Vehicle
contracts secured by the RBSL joint venture is advancing well.
- Transition to the Next Generation Munitions Supply Solution (NGMS)
contract is ongoing.
Cyber & Intelligence
Intelligence & Security
- Strong operational performance and integration of Bohemia Interactive
Simulations progressing well.
- Awarded an 18-year contract to continue supporting the sustainment of
U.S intercontinental ballistic missiles (ICBMs).
- Won a $699m (£575m), five-year contract for operations, maintenance,
and management services for the US Army's Defense Supercomputing Resource
Center.
Digital Intelligence
- Ongoing integration and transformation of the newly-formed business.
- Increasing underlying profitability supported by strong programme
execution, productivity and cost base optimisation.
- Continued integration and growth of the acquired In-Space Missions
business, a UK-based satellite and satellite systems company, to accelerate
our space capabilities.
HQ
- Repayment of £400m bond in June from existing resources.
For further information please contact:
Investors Media Relations
Email: investors@baesystems.com (mailto:investors@baesystems.com) Email: kristina.anderson@baesystems.com
(mailto:kristina.anderson@baesystems.com)
Analyst and investor presentation
A presentation, for analysts and investors, of the Group's first half results
for 2022 will be available via WebEx at 11.00am today (28 July 2022).
Details can be found on investors.baesystems.com, together with presentation
slides and a pdf copy of this report. A recording of the WebEx will be
available for replay later in the day.
About BAE Systems
At BAE Systems, we provide some of the world's most advanced, technology-led
defence, aerospace and security solutions. We employ a skilled workforce of
91,400 people(1) in over 40 countries. We help our customers to stay a step
ahead when protecting people and national security, critical infrastructure
and vital information. We also work closely with local partners to support
economic development through the transfer of knowledge, skills and technology.
1. Including share of equity accounted investments.
Interim management report
Half year overview
We entered 2022 with positive momentum building on a strong and resilient
performance over the last couple of years. In the first half of the year we
have:
- Stepped up to assist our customers in delivering urgent mission
critical capability;
- Sustained good operational performance;
- Managed the material impacts of supply chain and inflationary
pressures;
- Enhanced the portfolio with the acquisition of Bohemia Interactive
Simulations (BISim) and the agreement for the sale of BAE Systems' financial
crime detection business;
- Completed the UK pension triennial review - positive outcome for all
stakeholders;
- Evolved our ESG agenda and engagement;
- Secured 70% increase in order intake and opportunity pipeline
enhanced; and
- Continued investment in the business.
Strategically, our geographically diverse portfolio is very well aligned with
growing defence budgets and we are leveraging our leading capabilities in
evolving markets with a number of short- and longer-term opportunities
progressing positively both in defence and the adjacent sustainable technology
domains.
Financial focus is on revenue growth, margin expansion and cash conversion
over the medium term and we are continuing to make good progress in line with
our expectations in these areas.
Confidence in our strategic positioning and financial progress has once again
allowed us to increase the interim dividend and initiate a new share
repurchase programme of up to £1.5bn over three years.
Operational performance
Operational performance in the first half of 2022 has been good, underlining
our confidence in our programme execution capabilities and in the guidance for
sales growth, margin expansion and our three-year cash targets.
There remain ongoing pressures on our supply chains, delivery lead times and
people resourcing across our operations with Microelectronics continuing to be
a highly constrained category, and consistent with our guidance we continue to
mitigate the major financial impacts. In many cases, we benefit from long-term
programme positions and incumbencies with more stable forward visibility for
long-lead items allowing us to continue to actively manage supplier lead times
against demand requirements.
As the war in Ukraine continues, we remain closely engaged with our customers
around the world to provide on-going support for mission critical activities.
Overall programme execution has been good across all sectors. Electronic
Systems' short-term volumes are impacted by the constraints of the supply
chain but programme execution remains strong.
In Platforms & Services combat vehicle deliveries have been maintained.
There are a number of opportunities through US Foreign Military Sales (FMS)
and for our BAE Systems Hägglunds and Bofors products that are progressing
positively. Operational performance in US Ship Repair has improved from last
year.
The Air sector is performing in line with sales growth expectations for the
year. Production of rear fuselage assemblies for the F-35 Lightning II
aircraft programme is at full rate levels. Typhoon production is currently
focused on the Qatar, Kuwait and German Quadriga programmes with the first
Qatari deliveries scheduled for the second half. We continue to provide
Typhoon operators with ongoing support and training services to deliver
availability, maintenance and upgrade enhancements. The Tempest technology
maturation programme is progressing well and work continues to progress to
plan on the next-generation Future Combat Air System programme, with the
initial Concept & Assessment Phase underway.
In Maritime, work on the Type 26 programme in the UK and construction of the
first two Dreadnought submarines continues apace and the remaining three
Astute class boats are making good progress. On the Hunter programme in
Australia, focus continues on prototyping, engineering maturity, change
management and design separation.
Intelligence & Security continues to deliver strong operational
performance and the integration of Bohemia Interactive Simulations is
progressing to plan.
ESG
Assisting governments in delivering their mission critical requirements in the
face of escalating threats highlights our role as a defence and security
company in contributing to security and prosperity.
Global events have demonstrated the need for strong defence and security in
the face of aggression by nation states. The defence industry and we at BAE
Systems provide critical capabilities and support to our governments and their
allies to fulfill their primary obligations to keep their citizens safe, as
well as providing important economic and societal contributions through the
provision of sustainable high‑quality jobs.
Additionally, we continue to advance our capabilities in sustainable
technologies with a number of electric hybrid contracts won in the period. We
are harnessing our expertise in energy management systems and flight controls
to support the development of electric propulsion systems for future flight,
with GE Aviation selecting us to provide energy management solutions for
NASA's single aisle hybrid electric aircraft technology demonstrator
programme.
The progress we are making on our sustainability agenda has been reflected in
an improvement in ratings from a number of providers and we have maintained
our AA leader class rating with MSCI.
Competitiveness and efficiency
During these inflationary times we are focused on operational excellence and
efficiency. This is vital to our success, since we recognise we will win and
grow in the future based on our performance today, and helps us to address in
part where we have exposure from inflation. We have a number of programmes to
achieve efficiency and simplification across the Group, building on the
lessons learned on working practices and cost savings, while recognising the
cost of living challenges experienced by our employees. We are also bringing
data analytics to bear across the Group to benchmark and drive efficiency.
Advancing and further leveraging our technology
Investment in advanced technologies and innovation is a benefit which spans
the breadth of the business, supporting operational performance,
competitiveness, our sustainability objectives and growth aspirations. The
threat environment consists not just of the physical risks but also those in
the grey zone which need to be addressed. It is critical to our customers to
have a fully-integrated combination of capabilities to negate these threats.
Against this backdrop, we are set to increase our self-funded research &
development (R&D) investments this year. We are positioning the Group
towards future growth areas aligned to our customer priorities, by identifying
collaboration opportunities and investing in our leading capabilities and
technologies across electronic warfare, combat aircraft, precision weaponry,
cyber and the underwater battlespace. From these established positions we are
developing solutions into priority areas such as multi-domain networks, big
data, autonomy, space and sustainability-driven technology developments. The
current threat environment is constantly evolving and as part of our response
we continue to increase our technical agility along with strengthening our
partnerships with Small to Medium Enterprise companies to provide rapid
defence solutions.
While our R&D investments are important, we sustain our leading positions
through collaboration with our customers, educational institutions and in
partnership with defence laboratories and research institutions like DARPA,
the Air Force Research Laboratory, and the Office of Naval Research.
Additionally, we accelerate the pace and reach of our innovation by
collaborating wherever possible across our global enterprise.
Order flow
We have delivered a strong half year of order intake, up 70% and ahead of our
expectations, resulting in a record defence order backlog. Order flow was
especially good on our long-term programmes and has been predominantly long
cycle in nature, which will support our growth expectations into the coming
years.
We expect continued strong order flow in the second half of the year, with
opportunities across all sectors to enhance the growth outlook as we look to
support our key customers and allies in addressing their requirements to
counter the threat environment.
Defence spending outlook in our key markets
Our geographic diversity positions us strongly as many of the countries in
which we operate have announced or are making plans to increase spending to
counter the elevated and evolving threat environment on multiple fronts.
In the US, the spending outlook is positive. The Fiscal Year 2022 Omnibus
Appropriations bill was signed into law on 9 March. This FY22 budget of $743bn
(£612bn) maintains funding support for many of our key programmes: combat
vehicles; F-35 and other electronic warfare programmes; and precision weapon
systems. The President's Fiscal Year 2023 Budget Request includes $773bn
(£636bn) for the Department of Defense (DoD) and the business remains well
aligned to the current US National Defense Strategy readiness and
modernisation priorities of the US military services.
In the UK, the 2021 Defence Command Paper renewed commitments to our major
long-term programmes in complex warship, submarine and combat aircraft design
and build, allowing for long-term investment in these key sovereign
capabilities, as well as strong support for the cyber domain. The opportunity
pipeline is positive with domestic, export and collaboration opportunities
identified and we have the capabilities to support our UK customer in its
space ambitions.
In Europe, the shifts in defence expenditure have been profound with the
significant step up in German defence expenditure, Sweden and Finland looking
to join NATO and other nations increasing their defence budgets to, and even
beyond, their NATO 2% of GDP commitments. We remain increasingly well placed
to secure a number of significant opportunities through our positions on
Eurofighter Typhoon, our shareholding in MBDA, our BAE Systems Hägglunds and
Bofors businesses based in Sweden, and through US FMS.
Our portfolio is well positioned to benefit from increased defence spending in
Asia Pacific through our Australia business, which is already set to grow
significantly due to our contracted positions and through export opportunities
from our UK, US and Australian businesses to the region. The AUKUS
announcement is strategically significant and a clear example of how nations
are looking to co-ordinate capabilities in multi-domain operations to address
the threat environment. As the largest defence provider in the UK and
Australia and a top 10 prime contractor to the US DoD, we are well positioned
to support our government customers in these nations as discussions progress.
In the Middle East, our longstanding relationships at government and company
levels, continued regional instability and the nature of our long-term
contracts, mean we expect defence and security to remain a priority. The
renewal of certain existing long-term support contracts is tracking in line
with expectations and we continue to progress a number of opportunities with
existing customers.
Balance sheet and capital allocation
The Group recognises the importance to investors of a clear and consistent
capital allocation policy. The Group's balance sheet is managed conservatively
in line with its policy to retain its investment grade credit rating and to
ensure operating flexibility. The Group expects to continue to meet its
pension obligations, invest in research and technology and other organic
investment opportunities, and plans to pay dividends in line with its policy
of long-term sustainable cover of around two times underlying earnings.
Accelerated returns to shareholders, such as through a share repurchase, are
considered when the balance sheet allows and when the return from doing so is
value enhancing. Consistent with this approach, the Group has initiated a
share repurchase programme of up to £1.5bn, over a period of three years.
Investment in acquisitions will continue to be considered where market
conditions are right, where they deliver on the Group's strategy and where
they offer long-term value.
Post-employment benefits schemes
The Group's share of the accounting net post-employment benefits obligations
has improved by £3.0bn moving from a deficit of £2.1bn as at 31 December
2021 to a surplus of £0.9bn as at 30 June 2022, which is presented after
deducting withholding tax which would be levied prior to the future refunding
of any surplus. The change was mainly driven by an increase in discount rates
during the first half of the year.
The Group's deficit funding programme has completed and this was confirmed
during the recently‑completed triennial review which showed the scheme was
fully funded on a technical provisions basis and therefore no company deficit
contributions are required.
Dividend
The Board has declared an interim dividend of 10.4p for the half year ended 30
June 2022, an increase of 5% on the interim dividend in respect of the first
half of 2021. This will be paid on 30 November 2022 in line with our usual
dividend timetable.
Directors and the Board
As previously announced, Dame Carolyn Fairbairn and Ian Tyler stood down from
their roles as non-executive directors at the Annual General Meeting (AGM).
Nicole Piasecki has succeeded Ian Tyler as Chair of the Remuneration
Committee.
In June, it was announced that Lord Sedwill has been appointed as a
non-executive director of the Company with effect from 1 November 2022.
The Company has today announced that Cressida Hogg will join the Board as a
non-executive director and Chair designate, with effect from 1 November 2022.
Subject to election at the Company's AGM next year, she will succeed Sir Roger
Carr as Chair at the conclusion of that meeting, due to be held on 4 May 2023.
Investor engagement
We will host a capital markets event in October with a focus on the Digital
Intelligence business and an update on our ESG agenda.
Summary
The fundamentals of our business remain strong and the strategy of the Group
is unchanged. We remain well placed to deliver against our business and
financial objectives and are managing the material risks associated with
global macroeconomic challenges. Our business benefits from a large order
backlog, with established positions on long-term programmes in the US, UK,
Saudi Arabia and Australia. Governments in our key markets now more than ever
are prioritising defence and security, with strong demand for our
capabilities. This backdrop, together with our focus on programme execution,
positions us to grow our sales profitably and increase cash conversion in the
coming years. We are evolving the business to have an appropriate ESG agenda
embedded at its core with a constant focus on operational performance and
value creation. Higher cash generation gives us increased strategic
flexibility focused on technology aligned to our customers' priorities and
enables us to deliver increased cash returns to shareholders.
Glossary
We monitor the underlying financial performance of the Group using alternative
performance measures (APMs). These measures are not defined in International
Financial Reporting Standards (IFRS) and, therefore, are considered to be
non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly, the
relevant IFRS measures are also presented where appropriate.
The Group uses these APMs as a mechanism to support year-on-year business
performance and cash generation comparisons, and to enhance management's
planning and decision making on the allocation of resources. The APMs are also
used to provide information in line with the expectations of investors, and
when setting guidance on expected future business performance. The Group
presents these measures to the users to enhance their understanding of how the
business has performed within the period, and do not consider them to be more
important than, or superior to, their equivalent IFRS measures.
Measure Definition Purpose Closest IFRS measure and reconciliation
Financial performance measures as defined by the Group
Sales Revenue plus the Group's share of revenue of equity accounted investments, Enables management to monitor the review of both the Group's own subsidiaries Revenue Page 12
excluding subsidiaries' revenue from equity accounted investments. as well as its strategically important equity accounted investments, to ensure
programme performance is understood and in line with expectations.
Underlying EBIT Operating profit excluding amortisation of programme, customer-related and Provides a measure of operating profitability, excluding one-off events, to Operating profit Page 44
other(1) intangible assets, impairment of intangible assets, finance costs and enable management to monitor the performance of recurring operations over
taxation expense of equity accounted investments (EBIT) and non-recurring time, and which is comparable across the Group.
items(2). The exclusion of amortisation of acquisition-related intangible
assets is to allow consistent comparability internally and externally between
our businesses, regardless of whether they have been grown organically or via
acquisition.
Return on sales Underlying EBIT as a percentage of sales. Provides a measure of operating profitability, excluding one-off events, to Return on revenue Page 12
enable management to monitor the performance of recurring operations over
time, and which is comparable across the Group.
Underlying earnings per share Profit for the period attributable to shareholders, excluding post-tax impact Provides a measure of the Group's underlying performance, which enables Basic earnings per share
of amortisation of programme, customer-related and other(1) intangible assets, management to compare the profitability of the Group's recurring operations
impairment of intangible assets, non-cash finance movements on pensions and over time. Page 48
financial derivatives, and non-recurring items(2) attributable to
shareholders, being underlying earnings, divided by number of shares as
defined for Basic EPS in accordance with IAS 33 Earnings per Share.
Underlying interest Net finance costs for the Group and its share of equity accounted investments, Provides a measure of finance costs associated with the operational borrowings Net finance costs
excluding net interest expense on post-employment benefit obligations and fair of the Group that is comparable over time.
value and foreign exchange adjustments on financial instruments and Page 46
investments.
Underlying effective tax rate Taxation expense for the Group and its share of equity accounted investments, Provides a measure of taxation for the Group, excluding one-off items, that is Taxation expense Page 47
excluding any one-off tax benefit/expense, as a percentage of adjusted profit comparable over time.
before taxation, being Profit before tax plus taxation expense of equity
accounted investments, adjusted for non-recurring items(2).
Operating business cash flow Net cash flow from operating activities excluding taxation and including net Provides a measure of cash generated by the Group's operations, to service Net cash flow from operating activities Page 16
capital expenditure and lease principal amounts, financial investment and debt and meet tax obligations, and in turn available for use in line with the
dividends from equity accounted investments. Group's capital allocation policy.
Free cash flow Operating business cash flow less interest paid (net) and taxation. Provides a measure of cash generated by the Group's operations after servicing Net cash flow from operating activities Page 16
debt and tax obligations, available for use in line with the Group's capital
allocation policy.
Net debt (excluding lease liabilities) Cash and cash equivalents, less loans and overdrafts (including debt-related Allows management to monitor indebtedness of the Group, to ensure the Group's n/a
derivative financial instruments). Net debt does not include lease capital structure is appropriate and capital allocation policy decisions are
liabilities. suitably informed.
Order intake Funded orders received from customers including the Group's share of order Allows management to monitor the order intake of the Group's own subsidiaries n/a
intake of equity accounted investments. as well as its strategically important equity accounted investments, providing
insight into future years' sales performance.
Order backlog Funded and unfunded unexecuted customer orders including the Group's share of Supports future years' sales performance of subsidiaries and equity accounted Page 44
order backlog of equity accounted investments. Unfunded orders include the investments.
elements of US multi-year contracts for which funding has not been authorised
by the customer.
Measure Definition
Financial performance measures derived from IFRS
Revenue Income derived from the provision of goods and services by the Company and its
subsidiary undertakings.
Operating profit Profit for the period before finance costs and taxation expense. This measure
includes finance costs and taxation expense of equity accounted investments.
Return on revenue Operating profit as a percentage of revenue.
Basic earnings per share Basic earnings per share in accordance with International Accounting Standard
33 Earnings per Share.
Net cash flow from operating activities Net cash flow from operating activities in accordance with International
Accounting Standard 7 Statement of Cash Flows.
Order book The transaction price allocated to unsatisfied and partially satisfied
performance obligations as defined by IFRS 15 Revenue from Contracts with
Customers.
Net post-employment benefits surplus/(deficit) Net International Accounting Standard 19 Employee Benefits surplus/(deficit),
excluding amounts allocated to equity accounted investments.
Dividend per share Interim dividend paid and final dividend proposed per share.
1. Other intangible assets consists of patents, trademarks and
licenses.
2. Non-recurring items are items of financial performance which have
been determined by management as being material by their size or incidence and
not relevant to an understanding of the Group's underlying business
performance. The Group's definition of non-recurring items includes profit or
loss on business transactions, the impact of substantively enacted tax rate
changes, and costs incurred which are one-off in nature, for example
non-routine costs or income relating to post-retirement benefit schemes, and
other exceptional items which management has determined as not being relevant
to an understanding of the Group's underlying business performance. Note 2
Segmental analysis includes more information on those items reported as
non-recurring in the period.
Group financial review
Income statement summary
Six months Six months
ended
ended
30 June
30 June
2022
2021
£m £m
Financial performance measures as defined by the Group(1)
Sales 10,581 10,035
Underlying EBIT 1,112 1,028
Return on sales 10.5% 10.2%
Financial performance measures derived from IFRS(2)
Revenue 9,739 9,339
Operating profit 1,028 1,303
Return on revenue 10.6% 14.0%
Reconciliation of sales to revenue
Sales 10,581 10,035
Deduct Group's share of revenue of equity accounted investments (1,459) (1,233)
Add Subsidiaries' revenue from equity accounted investments 617 537
Revenue 9,739 9,339
Reconciliation of underlying EBIT to operating profit and profit for the
period
Underlying EBIT 1,112 1,028
Non-recurring items (8) 346
Amortisation of programme, customer-related and other intangible assets (51) (43)
Financial expense of equity accounted investments (9) (15)
Taxation expense of equity accounted investments (16) (13)
Operating profit 1,028 1,303
Net finance costs (249) (152)
Taxation expense (132) (49)
Profit for the period 647 1,102
1. For alternative performance measure definitions see glossary on
page 9.
2. International Financial Reporting Standards.
Segmental analysis(1)
Financial performance measures as defined by the Group(2)
Sales Underlying EBIT
Six months Six months ended Six months Six months
ended
30 June
ended
ended
30 June
2021(1)
30 June
30 June
2022
2022
2021(1)
£m
£m £m £m
Electronic Systems 2,276 2,142 359 335
Platforms & Services 1,638 1,595 146 109
Air 3,497 3,394 362 360
Maritime 2,155 2,028 182 184
Cyber & Intelligence 1,050 944 123 97
HQ 157 113 (60) (57)
Deduct Intra-group (192) (181) - -
10,581 10,035 1,112 1,028
Financial performance measures derived from IFRS(3)
Revenue Operating profit/(loss)
Six months Six months Six months Six months
ended
ended
ended
ended
30 June
30 June
30 June
30 June
2022
2021(1)
2022
2021(1)
£m £m £m £m
Electronic Systems 2,276 2,142 316 327
Platforms & Services 1,616 1,565 143 107
Air 2,863 2,846 345 476
Maritime 2,100 2,000 180 182
Cyber & Intelligence 1,050 944 108 95
HQ 5 3 (64) 116
Deduct Intra-group (171) (161) - -
9,739 9,339 1,028 1,303
Exchange rates
Average Six months Six months ended
ended
30 June
30 June
2021
2022
£/$ 1.298 1.388
£/€ 1.188 1.153
£/A$ 1.804 1.801
Period end 30 June 30 June
2022
2021
£/$ 1.215 1.381
£/€ 1.163 1.165
£/A$ 1.764 1.840
Year end 31 December
2021
£/$ 1.354
£/€ 1.191
£/A$ 1.863
Sensitivity analysis £m
Estimated impact on annual sales of a ten cent movement in the average
exchange rate:
$ 645
€ 115
A$ 40
Sales(2) in the first half increased to £10.6bn (2021 £10.0bn), up 2.8% on a
constant currency basis(4), or 5.4% on a reported basis.
Underlying EBIT(2) was £1,112m (2021 £1,028m), up 4.4% on a constant
currency basis(4), or 8.2% on a reported basis.
Revenue increased to £9.7bn (2021 £9.3bn), up 4.3%.
Operating profit was £1,028m (2021 £1,303m), down 21.1% on last year due to
the impact of non-recurring items in the prior year.
Non-recurring items(2) in 2022 comprises £8m related to current and
historical business transactions. The 2021 gain comprised a gain on the sale
of the Filton and Broughton sites (£182m), gains on disposal of Advanced
Electronics Company in the Air sector (£131m, of which £63m was attributable
to non-controlling interests) and on disposal of a business in our Electronic
Systems segment (£26m), and a £7m gain relating to a historical acquisition.
Amortisation of programme, customer-related and other intangible assets was
£51m (2021 £43m).
Net finance costs were £249m (2021 £152m). The underlying interest charge(2)
was £122m (2021 £122m). There was a charge of £113m (2021 charge of £9m)
in respect of rolling hedges on balances with the Group's subsidiaries and
equity accounted investments.
Taxation expense, including taxation expense of equity accounted investments,
of £148m (2021 £62m) reflects the Group's underlying effective tax rate(2)
for the period of 19% (2021 18%), adjusted for the impact of tax on
non-recurring items and of the UK tax rate adjustment. The 2021 charge also
reflects the impact of a one-off tax benefit of £94m in respect of agreements
reached regarding the exposure arising from the April 2019 European Commission
decision regarding the UK's Controlled Foreign Company regime (see note 4).
The underlying effective tax rate(2) for the full year is expected to be
around 20%, with the final rate dependent on the geographical mix of profits.
1. With effect from 2022, the Group has established a new Digital
Intelligence business, bringing together our non-US digital and data
capabilities to further strengthen how we deliver these services and
capabilities for our customers. The new Digital Intelligence business is
reported within the Cyber & Intelligence segment. In addition our BAE
Systems Australia business transitioned from the Air segment to the Maritime
segment. Comparative segmental financial information for 2021 has been
re-presented in this report to reflect the new business structures. See note 2
for further details of the re-presentation.
2. For alternative performance measure definitions see glossary on
page 9.
3. International Financial Reporting Standards.
4. Current period compared with prior period translated at current
period exchange rates.
Earnings per share
Six months Six months
ended
ended
30 June
30 June
2022
2021
£m
£m
Financial performance measures as defined by the Group(1)
Underlying earnings (excluding the one-off tax benefit - 2021 only) 768 701
Underlying earnings per share (excluding the one-off tax benefit - 2021 only) 24.5p 21.9p
Underlying earnings (including the one-off tax benefit - 2021 only) 768 795
Underlying earnings per share (including the one-off tax benefit - 2021 only) 24.5p 24.8p
Financial performance measures derived from IFRS(2)
Profit for the period attributable to equity shareholders 615 1,000
Basic earnings per share 19.6p 31.3p
Reconciliation of underlying earnings to profit for the period
Underlying earnings attributable to shareholders (excluding the one-off tax 768 701
benefit - 2021 only)
Non-recurring items attributable to shareholders, post tax(3) (2) 277
Amortisation of programme, customer-related and other intangible assets, and (41) (35)
impairment of intangibles, post tax(4)
Net interest expense on retirement benefit obligations, post tax(4) (17) (27)
Fair value and foreign exchange adjustments on financial instruments and (93) (10)
investments, post tax(4)
One-off tax benefit (2021 only) - 94
Profit for the period attributable to equity shareholders 615 1,000
Non-controlling interests 32 102
Profit for the period 647 1,102
Underlying earnings per share for the period increased by 11.9% to 24.5p (2021
21.9p excluding the one-off 2021 tax benefit).
Basic earnings per share for the period decreased by 37.4% to 19.6p (2021
31.3p). The decrease was driven mainly by the non-recurring gains in 2021 of
£182m on disposal of investment property, and £157m from gains on disposal
of subsidiaries and equity accounted investments.
1. For alternative performance measure definitions see glossary on
page 9.
2. International Financial Reporting Standards.
3. In 2021, £63m of the gain on disposal of AEC was attributable to
non-controlling interest. Therefore, only the gain attributable to
shareholders has been removed in calculating the underlying earnings
attributable to shareholders. See note 12 for more details. The tax on
non-recurring items has been determined using the actual tax due on those
items, see note 4 for details.
4. The tax impact, where applicable, is calculated using the
underlying effective tax rate of 19% (2021 18%).
Cash flow summary
Six months Six months
ended
ended
30 June
30 June
2022
£m 2021
£m
Financial performance measures as defined by the Group(1)
Free cash flow 123 461
Financial performance measures derived from IFRS(2)
Net cash flow from operating activities 493 623
Reconciliation from free cash flow to net cash flow from operating activities
Free cash flow 123 461
Add back Interest paid, net of interest received 119 117
Add back Taxation 168 116
Operating business cash flow 410 694
Add back/(Deduct) Net capital expenditure and financial investment 201 (67)
Add back Principal element of lease payments and receipts 137 123
Deduct Dividends received from equity accounted investments (87) (11)
Deduct Taxation (168) (116)
Net cash flow from operating activities 493 623
Net capital expenditure and financial investment (201) 67
Principal element of finance lease receipts 5 5
Dividends received from equity accounted investments 87 11
Interest received 9 12
Acquisitions, disposals and assets held for sale (161) 187
Net cash flow from investing activities (261) 282
Interest paid (128) (129)
Equity dividends paid (480) (461)
Purchase of own shares (130) -
Dividends paid to non-controlling interests (75) (172)
Partial disposal of shareholding in subsidiary undertaking - 27
Principal element of lease payments (142) (128)
Cash flow from derivative financial instruments (excluding cash flow hedges) 107 (81)
Movement in cash collateral - (4)
Net cash flow from loans (400) -
Net cash flow from financing activities (1,248) (948)
Net decrease in cash and cash equivalents (1,016) (43)
Foreign exchange translation (477) 37
Other non-cash movements 118 (21)
Add back Net cash flow from loans 400 -
Increase in net debt (excluding lease liabilities) (975) (27)
Opening net debt (excluding lease liabilities) (2,160) (2,718)
Net debt (excluding lease liabilities) (3,135) (2,745)
1. For alternative performance measure definitions see glossary on
page 9.
2. International Financial Reporting Standards.
Segmental analysis(1) Six months Six months
ended
ended
30 June
30 June
2022
£m 2021(1)
£m
Financial performance measures as defined by the Group(2)
Electronic Systems 93 254
Platforms & Services (59) (9)
Air 380 159
Maritime (22) (17)
Cyber & Intelligence 69 106
HQ (51) 201
Operating business cash flow 410 694
Taxation paid(3) (168) (116)
Interest paid, net of interest received (119) (117)
Free cash flow 123 461
Financial performance measures derived from IFRS(4)
Electronic Systems 187 328
Platforms & Services (20) 13
Air 378 238
Maritime 46 44
Cyber & Intelligence 85 118
HQ (15) (2)
Deduct Taxation(3) (168) (116)
Net cash flow from operating activities 493 623
Free cash flow was an inflow of £123m (2021 inflow of £461m). Operating
business cash inflow was £410m (2021 inflow £694m). The inflow reflects
operational business performance, and working capital management. 2021
included £250m inflow from the sale of the Filton and Broughton sites.
Net cash inflow from operating activities was £493m (2021 inflow £623m).
Taxation payments increased to £168m (2021 £116m).
Net capital expenditure and financial investment comprises a net outflow of
£201m (2021 inflow of £67m, mainly as a result of the proceeds from the
Filton and Broughton site sales).
Dividends received from equity accounted investments were £87m (2021 £11m).
Dividends paid to non-controlling interests of £75m (2021 £172m), primarily
reflects payments made by our partially owned subsidiaries in Saudi Arabia.
The reduction is primarily due to the dividend paid last year in respect of
the divestment of the Advanced Electronics Company.
Net cash outflow in respect of acquisitions, disposals and held for sale
assets of £161m (2021 inflow £187m) comprises cash paid for the acquisition
of Bohemia Interactive Simulations, deferred consideration for historical
acquisitions, plus cash classified as held for sale for the divestment of the
Financial Services business. The net inflow of £187m in 2021 was primarily in
relation to the divestment of the Advanced Electronics Company.
Equity dividends paid in 2022 represents the 2021 final dividend.
There was a net cash inflow from derivative financial instruments of £107m
(2021 outflow £81m) primarily from rolling hedges on balances with the
Group's subsidiaries and equity accounted investments.
Foreign exchange translation primarily arises in respect of the Group's US
dollar-denominated borrowing.
1. With effect from 2022, the Group has established a new Digital
Intelligence business, bringing together our non-US digital and data
capabilities to further strengthen how we deliver these services and
capabilities for our customers. The new Digital Intelligence business is
reported within the Cyber & Intelligence segment. In addition our BAE
Systems Australia business transitioned from the Air segment to the Maritime
segment. Comparative segmental financial information for 2021 has been
re-presented in this report to reflect the new business structures. See note 2
for further details of the re-presentation.
2. For alternative performance measure definitions see glossary on
page 9.
3. Taxation is managed on a Group basis.
4. International Financial Reporting Standards.
Net debt (excluding lease liabilities)
30 June 31 December
2022
2021
£m
£m
Components of net debt (excluding lease liabilities)
Cash and cash equivalents 1,956 2,917
Debt-related derivative financial instrument assets - non-current 130 114
Loans - non-current (5,136) (4,604)
Loans and overdrafts - current (53) (457)
Debt-related derivative financial instrument liabilities - non-current (32) (130)
Net debt (excluding lease liabilities)(1) (3,135) (2,160)
The Group's net debt (excluding lease liabilities) at 30 June 2022 is
£3,135m, a net increase of £975m from the position of £2,160m at the start
of the year.
Cash and cash equivalents of £1,956m (31 December 2021 £2,917m) are held
primarily for the repayment of debt securities, payment of the 2022 interim
dividends and management of working capital.
Going concern
After making due enquiries, the directors have a reasonable expectation that
the Group has adequate resources to continue in operational existence for at
least 12 months from the date of approval of this report and, therefore,
continue to adopt the going concern basis in preparing the financial
statements.
The Group continues to conduct ongoing risk assessments in relation to its
business operations and liquidity, including in relation to the potential
future impact of the COVID-19 pandemic. Demand from the Group's key customers
remains strong, underpinned by our order backlog, programme positions and
pipeline of opportunities across all sectors. The Group also continues to work
with and support its supply chain to actively address the risk of disruption.
The Group's liquidity has remained strong despite the pandemic. We have
continued to work closely with customers and the supply chain to manage risk
in this area. Cash flow forecasting is performed by the businesses on a
monthly basis. The Group also monitors a rolling forecast of its liquidity
requirements to ensure that there is sufficient cash to meet operational needs
and maintain adequate headroom.
Having undertaken these assessments, the directors consider that the Group
will be able to continue in operational existence for the foreseeable future.
For this reason they continue to adopt the going concern basis in preparing
the financial statements.
Principal risks and uncertainties
Having considered recent geopolitical and macroeconomic events, the Group
believes the principal risks and uncertainties facing the Group for the
remainder of the year are included in, and are therefore unchanged from, those
reported in the Annual Report 2021.
The Group's principal risks and uncertainties at 31 December 2021 were
detailed on pages 107 to 113 of the Annual Report 2021, and related to the
following areas: government customers, defence spending and terms of trade;
international markets; contract risk, execution and supply chain; competition
in international markets; outbreak of contagious diseases; cyber security;
people; pension funding; climate change and the environment; laws and
regulations; and acquisitions.
1. For alternative performance measure definitions see glossary on
page 9.
Segmental performance: Electronic Systems
Electronic Systems, with 16,900 employees(1), comprises the US- and UK-based
electronics activities, including electronic warfare systems, navigation
systems, electro-optical sensors, military and commercial digital engine and
flight controls, precision guidance and seeker solutions, next-generation
military communications systems and data links, persistent surveillance
capabilities, space electronics and electric drive propulsion systems.
Financial performance
Financial performance measures as defined by the Group(2) Financial performance measures derived from IFRS(3)
Six months ended Six months ended Year Six months ended Six months ended Year
30 June 2022
30 June
ended
30 June 2022
30 June
ended
2021
31 December 2021
2021
31 December 2021
Sales £2,276m £2,142m £4,491m Revenue £2,276m £2,142m £4,491m
Underlying EBIT £359m £335m £766m Operating profit £316m £327m £715m
Return on sales 15.8% 15.6% 17.1% Return on revenue 13.9% 15.3% 15.9%
Operating business cash flow £254m Cash flow from operating activities £187m £328m £951m
£93m £774m
Order intake £2,344m £2,234m £4,923m Order book £6.4bn £5.3bn £5.7bn
Order backlog £7.7bn £6.6bn £7.2bn
- Sales of £2.3bn are in line with 2021 on a constant currency basis(4)
reflecting challenges in the supply chain and resourcing constraints.
- Return on sales was 15.8%, up 20bps reflecting good programme
execution, with the usual second half weighting.
- Operating business cash flow of £93m reflects a more usual second
half weighted business cycle compared with last year.
- Order backlog grew since year-end, with a book-to-bill ratio(5) of 1.0
driven by awards on F-35, Precision Strike and C4ISR capabilities.
1. Including share of equity accounted investments.
2. For alternative performance measure definitions see glossary on
page 9.
3. International Financial Reporting Standards.
4. Current period compared with prior period translated at current
period exchange rates.
5. Ratio of Order intake to Sales.
Operational performance
Electronic Combat Solutions
The F-35 Lightning II programme completed the build of Lot 14 electronic
warfare (EW) systems and has delivered a cumulative total of over 1,100 EW
systems. We are also supporting the Block 4 modernisation efforts under
multiple contracts worth over $870m (£716m), and continue to operate under a
five-year Performance-Based Logistics contract to provide critical sustainment
support for the F-35 EW system.
Under contract from Boeing, we continue to deliver our next-generation EW
Eagle Passive Active Warning Survivability System to support the upgrade of
the US Air Force F-15 platform and testing on F-15E and F-15EX test aircraft.
In April, BAE Systems was awarded $36m (£30m) for low-rate initial production
phase two. We continue to pursue additional F-15 EW upgrade opportunities,
both domestic and international.
We are completing Lot 3 deliveries on Long Range Anti-Ship Missile and are
procuring material and building lower-level assemblies on Lot 4 and have
received awards for Lots 4, 5 and 6.
Due to the sensitive nature of electronic combat systems and technology, many
of our programmes are classified. These include our work as a world leader in
electronic warfare providing next-generation defence technology.
Countermeasure & Electromagnetic Attack Solutions
We have received six orders from the US Army towards the ten-year $872m
(£718m) Indefinite Delivery, Indefinite Quantity contract to provide
lifecycle sustainment and technical support to the Limited Interim Missile
Warning System programme. We continue to deliver on the first three production
lot orders totalling $188m (£155m) and anticipate further contracts to
advance efforts to enable fielding on other Army rotary-wing aircraft.
The Compass Call programme is currently executing contracts valued at more
than $1bn (£0.8bn), focused on the cross-decking of prime mission equipment
to the new EC-37B aircraft while sustaining and upgrading the existing EC-130H
fleet. We completed the second phase of testing to demonstrate the Small
Adaptive Bank of Electronic Resources technology on the EC-130H which fielded
in early 2022. Integration and test of the EC-37B mission system is ongoing
with the first new aircraft targeted to initially field in 2024.
Precision Strike & Sensing Solutions
The APKWS(®) guidance kit programme is executing production under an
Indefinite Delivery, Indefinite Quantity contract, with awards worth over $48m
(£40m) received in the first half. Test events in May proved enhanced mission
sets in support of US and allied forces precision strike missions.
The Terminal High Altitude Area Defense (THAAD) seeker programme, which
provides critical targeting technology that helps protect the US and its
allies from ballistic missiles, is currently executing at full-rate production
levels. In parallel, we are designing and prototyping next-generation THAAD
infrared seekers valued at $150m (£123m).
We are executing a contract with Space Systems Command to develop an Increment
II Miniature Serial Interface GPS receiver with next-generation Application
Specific Integrated Circuit engine valued at more than $270m (£222m).
C4ISR Systems
Recent awards have positioned us as a full-spectrum communications provider to
meet customers' needs for connectivity and information sharing to support
joint all-domain command and control, to include our selection and award for
Airborne High Frequency Radio Modernization during the first half.
We have entered into a customer agreement to launch an experimental satellite
which brings our disruptive technology capability to the space domain. We are
continuing our radiation-hardened Application Specific Integrated Circuit
Library technology on a number of programmes and developing novel
radiation-tolerant microelectronics.
Controls & Avionics Solutions
We are seeing an uptick in airline traffic and business travel, resulting in
improving demand for Original Equipment Manufacturer deliveries and
aftermarket services.
The business continues to develop the integrated flight control electronics
and remote electronic units for the new Boeing 777X aircraft family. The
flight control system is performing as expected during flight testing, and we
continue to incorporate software updates and conduct systems verification
testing.
Our engine control products, offered through the FADEC International and FADEC
Alliance joint ventures, continue to perform well across our portfolio. On the
military side, the GE T901 FADEC is developing and completed a successful
engine test in March.
We are engaged in the trend towards electric aircraft, specifically in the
emerging advanced air mobility segment. We were also selected to design, test
and supply energy management components for GE Aviation's megawatt class
hybrid electric propulsion system in support of NASA's Electrified Powertrain
Flight Demonstration project.
Deliveries of F-35 vehicle management computer and active inceptor systems
have successfully ramped up, and we are enabling the first US Depot stand-up
scheduled for 2022. Internationally, development of the advanced vehicle
control system for the UK Dreadnought submarine programme remains on plan.
We continue to advance our autonomous control technologies through successful
crewed-uncrewed teaming flight tests under a US Department of Defense
programme.
Power & Propulsion Solutions
As global greenhouse gases rise, the pressure is on for the transportation
industry to reduce harmful emissions. BAE Systems is opening channels to
market with a new bus-manufacturing customer, Hometown Manufacturing, leading
to increased opportunities for battery electric trolley and bus systems in
North America.
Sales to Nova Bus continue to grow as legacy customers, such as Houston Metro,
move from electric-hybrid technology to full battery electric systems. In the
first half, Philadelphia, Pennsylvania and Boston, Massachusetts, purchased
380 electric hybrid buses, and Canadian transit operators in Mississauga and
Toronto placed orders for more than 500 systems.
We also saw the pandemic move the maritime domain into a period of evolution
and growth. The Maine Department of Transportation selected Senesco Marine to
build its new passenger vessel using BAE Systems' electric-hybrid propulsion
solution to deliver reduced and zero-emission ferry operations.
Looking forward
Electronic Systems is well positioned for growth in the medium term as it
continues to address current and evolving US defence priority programmes from
its strong franchise positions in electronic warfare, navigation systems,
precision guidance and seeker solutions. Electronic Systems has a
long-standing programme of research and development. Its focus remains on
maintaining a diverse portfolio of defence and commercial products and
capabilities for US and international customers. The business expects to
benefit from its ability to apply innovative technology solutions that meet
defence customers' changing requirements. As a result, the business is well
positioned for the medium term with significant roles on F-35 Lightning II,
F-15 upgrade, M-Code GPS upgrades and classified programmes, as well as with
specific products such as APKWS(®). Over the longer term, the business is
poised to leverage its technology strength in emerging areas of demand such as
precision weaponry, space resilience, hyper-velocity and autonomous vehicles.
With our electric drive propulsion capabilities we are well placed to continue
to address the need for low and zero emission technology across an increasing
number of platforms.
The commercial aviation market has been negatively impacted by the pandemic
and whilst we are seeing early stages of recovery it is expected to take
several years to reach previous levels. The business has been scaled
appropriately and Electronic Systems' technology innovations are enabling the
business to maintain its long-standing customer positions and adjust as the
market evolves.
Segmental performance: Platforms & Services
Platforms & Services, with 12,200 employees(1), has operations in the US,
UK and Sweden. It manufactures and upgrades combat vehicles, weapons and
munitions, and delivers services and sustainment activities, including naval
ship repair and the management and operation of government-owned munitions
facilities.
Financial performance
Financial performance measures as defined by the Group(2) Financial performance measures derived from IFRS(3)
Six months ended Six months ended Year Six months ended Six months ended Year
30 June
30 June
ended
30 June
30 June
ended
2021
31 December 2021
2021
31 December 2021
2022 2022
Sales £1,638m £1,595m £3,395m Revenue £1,616m £1,565m £3,318m
Underlying EBIT £146m £109m £259m Operating profit £143m £107m £252m
Return on sales 8.9% 6.8% 7.6% Return on revenue 8.8% 6.8% 7.6%
Operating business cash flow £(9)m Cash flow from operating activities £(20)m £13m £351m
£(59)m £287m
Order intake £1,513m £1,845m £3,236m Order book £5.6bn £5.7bn £5.3bn
Order backlog £5.9bn £6.1bn £5.6bn
- Sales of £1.6bn declined by 3% on a constant currency basis(4). This
decline was driven by lower US Ship Repair volumes, while combat vehicles
volumes were maintained.
- Return on sales performance for the half year was 8.9%, an improvement
of 210bps driven by improved efficiencies in Ship Repair and improved
operational performance in combat vehicles.
- The first half saw cash outflow of £59m, which reflects the
utilisation of advances received in the prior year.
- Book-to-bill ratio(5) of 0.9 reflects further awards on M109 and
Amphibious Combat Vehicles.
1. Including share of equity accounted investments.
2. For alternative performance measure definitions see glossary on
page 9.
3. International Financial Reporting Standards.
4. Current period compared with prior period translated at current
period exchange rates.
5. Ratio of Order intake to Sales.
Operational performance
Combat Mission Systems
Combat Mission Systems is achieving consistent production throughput at
heightened volumes across multiple programmes. The team has worked closely
with customers to address pandemic-related disruptions and schedule impacts.
Investments in facilities and manufacturing technologies, including automation
and robotic welding, are delivering positive returns as we move to full-rate
production across a number of platforms.
We delivered Amphibious Combat Vehicles (ACVs) to the US Marine Corps under
low-rate initial production contracts totalling approximately $600m (£494m)
for 116 vehicles, and continue to execute on four full-rate production
contracts for an additional 155 vehicles at a value of $810m (£667m). We
received a $35m (£29m) contract for a new ACV recovery variant in March and
are working on additional variants.
On the US Army's Armored Multi-Purpose Vehicle (AMPV) programme, we have
received production contracts worth $1.3bn (£1.1bn). Deliveries of the five
variants continued this year according to the rebaselined schedule
contractually agreed with the Army in December. We are also working under a
July 2021 contract worth up to $600m (£494m) for AMPV sustainment services.
On M109A7 programme, contracts worth a total of $1.5bn (£1.2bn), all 133
low-rate initial production vehicle sets and 216 full-rate production vehicle
sets have been delivered. We are now executing on 2019 and 2020 full-rate
production contracts totalling $996m (£820m) for 232 vehicle sets, including
a $299m (£246m) contract in June. We have also received early order material
awards totalling $121m (£100m) for future full-rate production.
Following several modifications, the contract to upgrade Bradley vehicles to
the A4 configuration is valued at $809m (£666m) for 459 vehicles and spares.
We are working on a five-year follow-on production contract to add about $210m
(£173m) for 70 vehicles through 2023, with quantities to be determined for
the remaining four years.
We are executing on a prototype contract to integrate a hybrid-electric drive
system onto Bradley Fighting Vehicles.
We continue to produce and sustain the US Army's M88A2 recovery vehicles, and
develop next-generation M88A3 prototypes under a $79m (£65m) contract.
We are producing Mk 41 Vertical Launching System (VLS) missile canisters for
the US Navy under awards totalling $433m (£356m), with a total potential
value of more than $624m (£514m). We are also working on a $164m (£135m),
five-year contract as the Navy's design agent for missile canisters and the
mechanical portion of the VLS.
We are delivering Mk45 Mod 4 gun systems to the US Navy, and working to
provide 57mm Mk110 gun systems for the US Navy and Coast Guard. We are also
executing on a 2021 contract to deliver the first Mk 38 Mod 3 25mm machine gun
system designed to counter unmanned aerial systems (C-UAS) to the Navy, and
another contract to convert existing Mk 38 Mod 2 gun systems to Mod 3 and add
C-UAS capability.
Deliveries continue of 37 Virginia Payload Module tubes for the US Navy's
Block V Virginia Class submarines.
Ordnance Systems
We continue to operate and modernise the US Army's Radford and Holston
ammunition plants under a total of $1.7bn (£1.4bn) in modernisation
contracts. We are performing under the Army's previously granted two-year
extension for Radford operations, and in July we were awarded a five-year
contract extension for the operations of the Radford Army Ammunition Plant
with a $1.3bn (£1.1bn) ceiling value that is expected to be incrementally
funded in future periods. We are also progressing our response for the
upcoming Holston operations competition.
At Holston, modernisation activities continue, including the construction of a
Weak Acetic Acid Recovery Plant, a wastewater management facility, and the
design, construction and commissioning of new production facilities.
At Radford, construction of a modern nitrocellulose facility has been
completed and is in the product qualification phase.
US Ship Repair
The business continues to modernise and maintain US Navy ships, receiving
contracts worth a cumulative value of over $440m (£362m) during the first
half for maintenance and modernisation.
Our shipyards were impacted by delayed starts to ship repair contracts due to
operational naval tasking, coupled with delays to pending contract awards and
higher than usual levels of customer-added work to existing contracts.
Investments in operational excellence and resources are delivering benefits as
we address several challenged ship modernisations.
BAE Systems Hägglunds
As the business expands its workforce and facilities to accommodate the
significant number of new orders received over the last 18 months, the team is
executing on a contract to upgrade and extend the life of the Netherlands
CV9035 fleet, including the integration of an Active Protection System, an
anti-tank guided-missile system, and the addition of rubber band tracks. In
addition, we are performing under a 2021 contract exceeding $500m (£412m) for
mid-life upgrades, including the development and testing of a new turret.
In March, we received a contract to equip 20 CV90s with the Mjölner mortar
system for Sweden, following the delivery of 40 of the systems on time, at
cost and quality, as work is progressing to refurbish the Swedish CV90 fleet.
Our work continues to extend the life of 186 Swiss Army CV90s to 2040.
For Norway, the first four of 20 vehicles were delivered on time and at cost
in May under a contract exceeding $50m (£41m), and we received a seven-year
contract in January for support, sustainment and readiness of 144 CV90s.
Under a contract for Finland, we are upgrading and extending the life of its
CV90s.
As we pursue the Czech Republic's evolving procurement for new fighting
vehicles, the CV90 won the competitive evaluation for Slovakia's Infantry
Fighting Vehicle programme, and contract negotiations are expected to complete
in the second half.
We received a contract worth approximately $200m (£165m) from Sweden for 127
BvS10s. Additionally, we are under contract from the French Army to sustain
and maintain readiness of its BvS10 fleet.
BAE Systems Bofors
The 24 additional ARCHER systems for Sweden are nearing completion, with a
number of ARCHER pursuits in our home and export markets. ARCHER was selected
as one of two systems under consideration by the Swiss government for its
future artillery system.
We are under multiple export contracts to deliver 40Mk4 and 57Mk3 naval gun
systems, including five 57Mk3s and ten 40Mk4s for the UK Royal Navy's Type 31
frigates, as well as 12 40Mk4s to the Belgian and Dutch navies, and 57mm
(Mk110) gun systems for the US Navy and Coast Guard.
Weapon Systems UK
Production of 145 M777s for the Indian Army continues under a $542m (£446m)
Foreign Military Sales contract. We continue to assess the likely projected
workload for M777 production.
FNSS
FNSS, our land systems joint venture based in Turkey, continues to produce 8x8
wheeled armoured vehicles for the Royal Malaysian Army. Production continues
on medium-weight tanks for delivery to Indonesia, and work on a specialist
engineering vehicles agreement for the Philippines continues.
Multiple contracts for the Turkish Armed Forces worth roughly €800m (£688m)
are progressing. These include contracts for air defence vehicles, assault
amphibious vehicles, and special purpose 8x8 and 6x6 vehicles. In 2021 a
contract extension was signed for a further 84 anti-tank vehicles in addition
to the 260 already delivered or in production, and last December a €25m
(£21m) logistics support contract was signed. The first vehicles are in
production on a programme to modernise 133 armoured combat vehicles for the
Turkish Armed Forces.
Looking forward
Combat Mission Systems and BAE Systems Hägglunds is underpinned by a growing
order backlog and incumbencies on key franchise programmes. These include the
US Army's Armored Multi-Purpose Vehicle, M109A7 self-propelled howitzer,
Bradley upgrade programmes, Amphibious Combat Vehicle, M88, as well as the
CV90 and BvS10 and Archer products from our Swedish-based businesses. FNSS
continues to execute on its order book of both Turkish and international
orders. These long-term contracts and franchise positions make the combat
vehicles businesses well placed for future growth given the opportunity
pipeline over the medium term. Additionally, the team is working on, and is
closely following, the US Army's acquisition plans for its next generation of
combat vehicles.
In the maritime domain, the sector has a strong position on naval gun
programmes and US Navy ship repair activities where the business has invested
in facilities in key home ports. This capitalised infrastructure represents a
high barrier to entry, and the business remains well aligned to the US Navy's
operational strategy and projected fleet increase.
The Group remains a leading provider of gun systems and precision strike
capabilities and, in the complex ordnance manufacturing business, continues to
manage and operate the US Army's Radford and Holston munitions facilities
under previously awarded contracts.
Segmental performance: Air
Air, with 24,200 employees(1), comprises the Group's UK‑based air activities
for European and International markets, US Programmes and development of
Future Combat Air Systems, alongside its business in Saudi Arabia, together
with its 37.5% interest in the European MBDA joint venture.
Financial performance(2)
Financial performance measures as defined by the Group(3) Financial performance measures derived from IFRS(4)
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31 December 2021(2)
2021(2)
31 December 2021(2)
2022 2022
Sales £3,497m £3,394m £7,449m Revenue £2,863m £2,846m £6,041m
Underlying EBIT £362m £360m £772m Operating profit £345m £476m £849m
Return on sales 10.4% 10.6% 10.4% Return on revenue 12.1% 16.7% 14.1%
Operating business cash flow £159m Cash flow from operating activities £378m £238m £638m
£380m £548m
Order intake £8,883m £2,270m £5,695m Order book £16.3bn £12.6bn £12.2bn
Order backlog £23.3bn £18.6bn £17.8bn
- Sales of £3.5bn were up 4% on a constant currency basis(5), driven by
F-35 running at full rate production, increased activity on Tempest in Future
Combat Air System, growth in MBDA, and good progress being made towards the
first Qatar Typhoon deliveries in the second half of the year.
- The return on sales is 10.4%, with good programme execution
maintained.
- Cash flow of £380m largely reflects strong cash performance from
MBDA.
- Order backlog was £23.3bn, which represents significant orders
received across Saudi Arabia support, F-35 LRIP and Sustainment awards,
Typhoon production orders, Hawk UK support orders and a strong MBDA order
flow.
1. Including share of equity accounted investments.
2. Financial information for 2021 in relation to the Air segment has
been re-presented to reflect the organisational changes which took effect at
the start of 2022, which established the new Digital Intelligence business and
whereby the management of the Group's Australia business was transferred to
the Maritime segment. See note 2 for further details of the re-presentation.
3. For alternative performance measure definitions see glossary on
page 9.
4. International Financial Reporting Standards.
5. Current period compared with prior period translated at current
period exchange rates.
Operational performance
European & International markets
Activity on the 24 Typhoon and 9 Hawk aircraft and associated support and
training contract for the State of Qatar is progressing well. Seven Hawk
aircraft have been accepted by the customer and entered into service at RAF
Leeming, in line with the agreement to base the Qatari Hawk aircraft in the
UK. The first Typhoon aircraft remains on schedule for delivery in Q3 this
year, and in total six Typhoon aircraft are planned to be delivered before the
end of 2022.
Deliveries of major units continue under the Kuwait Typhoon contract, secured
by Italian Eurofighter partner Leonardo. Four major units were completed in
the first half of 2022, with the one remaining delivery planned for the second
half of the year.
Production of major units is progressing to plan on the £1.3bn German Air
Force order for 38 aircraft to replace its original Typhoon Tranche 1
aircraft, with 15 major units now having commenced build, and completion of
the first front fuselage planned for the second half of 2022.
During the first half of 2022 BAE Systems received an order for our workshare
valued at in excess of £0.5bn for an additional 20 aircraft for the Spanish
Air Force.
During the period the Group secured an eleven-year follow-on contract valued
at £0.6bn for support to the Royal Air Force's fleet of Hawk fast jet trainer
and Royal Air Force Aerobatic Team aircraft. Alongside this, the ten-year
partnership arrangement for support to the Royal Air Force's Typhoon fleet
continues to deliver the contracted flying hours.
Following initial entry into service of the export standard electronically
scanned European Common Radar in late 2021 further deliveries continue in
2022. Development continues on the national radar variants for the UK, German,
Italian and Spanish Air Forces. The UK continues to fund development activity
for the future UK Typhoon weapon system and sensors, as part of the Partner
Nations' commitment to the ten-year Typhoon capability enhancement programme.
Future Combat Air System
The Tempest technology maturation programme is progressing well, and work
continues to plan on the contract received in 2021 for the Future Combat Air
System Concept & Assessment Phase. Working with national and international
industry partners and the Ministry of Defence, this contract enables the
development of a range of digital concepts, embedding new tools and techniques
to design, evaluate and shape the final design and capability requirements of
Tempest. The project will deliver the first flying combat air demonstrator
within the next five years.
US Programmes
F-35 rear fuselage manufacturing continues at full rate production through
2022 with 74 rear fuselage assemblies completed during the first half, and a
further 76 planned for the second half, in line with the programmes for Lot
14, 15 and 16 contracts.
Following the award in 2021 of a five-year contract for F-35 sustainment
services to December 2025, we continue to provide services for both the UK and
US customers in support of key F-35 sustainment activities.
Saudi Arabia
In Saudi Arabia, the In-Kingdom Industrial Participation programme continues
to make good progress consistent with our long-term strategy, as well as the
Saudi Arabian government's National Transformation Plan and Vision 2030. Our
in-Kingdom Saudi employee base continues to grow with 76% Saudisation, and 94%
of our in-Kingdom female employees are Saudi nationals. We also continue the
development of our footprint across the Kingdom, with demonstrable
contributions to our local communities.
The Group is reliant on the continued approval of export licences by a number
of governments in order to continue to support programme operations in the
Kingdom of Saudi Arabia. We are working closely with industry partners and the
UK government to continue to fulfil our contractual support arrangements in
the Kingdom.
BAE Systems continues to perform against the current five-year contract to
provide Typhoon support services to the Royal Saudi Air Force, which will
complete at the end of 2022. Through this contract, the business also supports
the Industrialisation of Defence capabilities in Saudi Arabia. Discussions
have commenced with the customer for the company to continue to provide these
support services for a further five years.
Under the Saudi British Defence Co-operation Programme (SBDCP) agreement, the
Group discharges a number of contracts, including support to the Tornado
fleet, provision of Officer and Aircrew Training and Technician training for
the Royal Saudi Air Force, as well as technical training, engineering and
logistics services for the Royal Saudi Naval Forces.
Following the completion of the previous five-year SBDCP funding arrangement
on 31 December 2021, we have reached an agreement with the Saudi Arabian
government to continue to provide these services for a further five years
through to 31 December 2026. An Instruction To Proceed for the full five-year
contract has now been received from the Royal Saudi Air Force.
All 22 Hawk aircraft assembled in-Kingdom have now been completed. The final
aircraft remains subject to formal acceptance by the Royal Saudi Air Force,
and this is anticipated to occur by the end of July 2022.
Following the Saudi Arabia Military Industries purchase of Advanced
Electronics Company in 2021, we continue to review our portfolio of interests
in a number of industrial companies in Saudi Arabia. We continue to explore
opportunities to collaborate with key local partners, including Saudi defence
entities, to deliver further In-Kingdom Industrial Participation, in line with
the Kingdom's National Transformation Plan and Vision 2030.
Future Programmes
The Group continues to invest in promising new and innovative technologies for
the future including the exploration and development of e-products capability
with a number of partners. BAE Systems is one of a consortium of investors in
the Eve Urban Air Mobility (UAM) electric vertical take-off and landing
(eVTOL) company, aimed at designing, testing, and manufacturing small,
zero-emission aircraft. We have also signed a Memorandum of Understanding with
Embraer S.A. confirming our intention to create a joint venture to develop a
defence variant of Eve's eVTOL aircraft.
MBDA
After winning a number of key domestic and export orders in 2021, MBDA has
continued this success in the first half of 2022, and the business is well
placed to benefit from increased defence spending in a number of European
countries along with further international opportunities.
In the period, significant export market orders were received. Aligned with
the Rafale platform sales, MBDA has been awarded an air weapons package from
the UAE and a further air weapons package for Greece. Following the Naval
Group Defence and Intervention Frigate platform success in Greece, MBDA has
been awarded a Naval Based Air Defence weapons package for the frigates.
With European countries recognising the importance of sovereign capabilities
in the missile sector and re-evaluating their needs, Poland has accelerated
its ground-based air defence campaign, awarding the first phase to MBDA for
the Common Anti Air Modular Missiles and launchers.
Production is being maintained across the MBDA product range, despite supply
chain pressure in the aftermath of the pandemic and as a result of the Ukraine
crisis. Progress continues across a number of assessment and development phase
programmes including Future Cruise and Anti-Ship Weapon; MICA Next Generation,
Spear Capability 3 and Aster Block 1 New Technology.
Looking forward
Future Typhoon production and support sales are underpinned by existing
contracts. Discussions continue in relation to potential further contract
awards for Typhoon, which would extend current production revenues. Production
of rear fuselage assemblies for the F-35 is expected to be sustained at the
current full rate levels. The business plays a significant role in the F-35
sustainment programme in support of Lockheed Martin, and revenues will
continue to grow as the number of aircraft deployed increases over the coming
years. Defence and security remains a priority for the UK government. The UK
Combat Air Strategy provides the base to enable long-term planning and
investment in a key strategic part of the business.
In Saudi Arabia, the In-Kingdom Industrial Participation programme continues
to make good progress consistent with our long-term strategy, as well as the
Saudi Arabian government's National Transformation Plan and Vision 2030. Our
in-Kingdom support business is expected to remain stable underpinned by
long-standing contracts renewed every five years.
In order to provide ongoing capability to international customers, the Group
is reliant on the continued approval of export licences by a number of
governments. The withholding of such export licences may have an adverse
effect on the Group's provision of capability to the Kingdom of Saudi Arabia
and the Group will seek to work closely with the UK government to manage the
impact of any such occurrence.
MBDA has a strong order backlog and positively evolving opportunity pipeline
supporting future years' sales. Development programmes continue to improve the
long-term capabilities of the business in air, land and sea domains.
Segmental performance: Maritime
Maritime, with 22,800 employees(1), comprises the Group's UK-based maritime
and land activities, as well as the Group's Australian business.
Financial performance(2)
Financial performance measures as defined by the Group(3) Financial performance measures derived from IFRS(4)
Six months ended Six months ended Year Six months ended Six months ended Year
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2022 2022
Sales £2,155m £2,028m £4,169m Revenue £2,100m £2,000m £4,093m
Underlying EBIT £182m £184m £351m Operating profit £180m £182m £347m
Return on sales 8.4% 9.1% 8.4% Return on revenue 8.6% 9.1% 8.5%
Operating business cash flow £(17)m Cash flow from operating activities £46m £44m £534m
£(22)m £374m
Order intake £4,108m £3,082m £5,688m Order book £13.3bn £11.0bn £11.6bn
Order backlog £14.2bn £11.8bn £12.1bn
- Sales were up by 6% at £2.2bn on a constant currency basis(5), due to
increased volumes on Dreadnought and Type 26 programmes.
- Return on sales was at 8.4%. 2021 benefitted from risk releases across
a number of programmes.
- The operating business cash outflow was £22m, reflecting utilisation
of UK munitions advanced funding.
- Order backlog increased to £14.2bn, reflecting ongoing Dreadnought
funding.
1. Including share of equity accounted investments.
2. Financial information for 2021 in relation to the Maritime segment
has been re-presented to reflect the organisational changes which took effect
at the start of 2022, whereby the management of the Group's Australia business
was transferred to the Maritime segment. In addition, the management of
certain other Maritime segment activities was transferred to the Group's new
Digital Intelligence business, reported within the Cyber & Intelligence
segment. See note 2 for further details of the re-presentation.
3. For alternative performance measure definitions see glossary on
page 9.
4. International Financial Reporting Standards.
5. Current period compared with prior period translated at current
period exchange rates.
Operational performance
Maritime
Naval Ships
The Type 26 programme continues to progress with construction underway on the
first three City Class Type 26 frigates. Preparations continue for the first
of class, Glasgow, to depart our Govan shipyard and enter the water later this
year. She will then transition to our Scotstoun shipyard where further outfit,
test and commissioning will take place. Half of the major units of the second
ship in class, Cardiff, are erected, while the third ship, Belfast, continues
to progress after entering manufacture in June 2021.
The Canadian Surface Combatant programme work is progressing on the Definition
Phase Contract, where we have the responsibility for Warship Design and are
currently in the Preliminary Design Review stage. Work is also progressing on
the Support Services subcontract, which is a four-year framework agreement to
provide technical assistance to Irving Shipbuilding Inc., through intellectual
property licensing, and the provision of consultancy services to help upskill
its workforce ahead of cutting steel on the first ship.
In our Combat Systems business, the successful delivery of major upgrades to
the combat system capabilities on board both HMS Queen Elizabeth and HMS
Prince of Wales enabled Carrier Strike Group tasking whilst achieving 99.5%
equipment availability for the fleet. Our Combat Systems business also
continues to focus on the future, forging new partnerships and investing in
new open architecture and cloud-ready mission systems.
Submarines
Our Submarines business is a member of the Dreadnought Alliance, working
alongside the Submarine Delivery Agency (SDA) and Rolls-Royce to deliver the
replacement for the Royal Navy's Vanguard Class, which carries the UK's
nuclear deterrent. Four Dreadnought Class submarines will be built in Barrow,
with the first of these due to be in operational service in the early 2030s.
Construction of the first and second submarines continues to advance. The
value of the programme to the company to date is £10.3bn, with additional
contract funding of £2.5bn received to date in 2022 as part of Delivery Phase
3 (DP3). DP3 will see the first submarine, Dreadnought, exit our Barrow site
to begin sea trials, laying the foundation to sustain the Continuous at Sea
Deterrent.
In April of this year, BAE Systems Submarines entered into the Submarine Build
Capability Contract with the SDA, which maintains the business' role as the
lead for the design and build of nuclear submarines within the UK submarine
enterprise.
Four Astute Class submarines have been delivered to the Royal Navy, while the
fifth, Anson, is scheduled to exit the Barrow shipyard for sea trials later
this year. The remaining two submarines, Agamemnon and Agincourt, are at an
advanced stage of construction in Barrow.
Early design and mobilisation activities for the Submersible Ship Nuclear
Replacement (SSNR), the programme to deliver a replacement for the Astute
class, are progressing, with the programme recently entering the Functional
Design phase.
Maritime Services
Our Maritime Services business has successfully delivered continued support to
the UK Ministry of Defence and the Royal Navy at HM Naval Base Portsmouth.
Service delivery under the Ministry of Defence's Future Maritime Support
Programme (FMSP) came into effect on 1 October 2021 and will continue for at
least five years. The Hard Facilities Management Alongside Services contract
is delivered by the KBS Maritime joint venture with KBR which was established
last year.
Under the FMSP Ship Engineering Management contract, we continue to maintain,
repair, upgrade and prepare the Portsmouth flotilla. This includes support to
HMS Prince of Wales, currently the NATO flagship, ahead of and during Exercise
Cold Response 2022, a major NATO exercise in Norway.
We are supporting the Royal Navy's Batch 2 Offshore Patrol Vessels around the
globe with our teams deployed to North America, the Caribbean, the South
Atlantic and the Indo-Pacific regions during the period. We have maintained
more than 98% availability for these five vessels.
The Type 45 Propulsion Improvement Programme is progressing, with three ships
simultaneously in the programme during the period. HMS Dauntless is scheduled
to conclude sea trials in Q3 ahead of a return to the fleet, HMS Daring has
commenced her work in Birkenhead, and HMS Dragon's upgrade is being conducted
alongside a deep maintenance upkeep in Portsmouth.
An agreement was signed with Barzan Maintenance Shield and the Qatar Emiri
Naval Force (QENF) outlining the parties' intent to develop Warship and Naval
Base Management Services for the QENF.
In the Underwater Weapons business stream, the Torpedo Repair and Maintenance
contract for in-service support to the UK's Royal Navy continues to perform
well. The £270m Spearfish torpedo upgrade programme, delivered for the UK
Ministry of Defence and Royal Navy, continues to produce modification kits as
part of the production phase which commenced in 2021.
Land UK
The business has started transitioning to the Next Generation Munitions Supply
Solution (NGMS) contract, which supersedes the Munitions Acquisition Supply
Solution (MASS) contract at the end of this year and details the supply of
munitions to the Ministry of Defence for the next 15 years. Both the MASS and
NGMS programmes are progressing well and the business is on track to achieve
agreed timelines. The £90m NGMS investment programme is also advancing at
pace, with £20m of this committed to updating and expanding manufacturing
equipment and infrastructure by the end of 2023.
Mobilisation of the Challenger 3 and Mechanised Infantry Vehicle contracts
secured by the RBSL joint venture are progressing well. Supply chain
manufacturing has begun, with the first steel cut on the vehicle's turret
structures. RBSL's multi-million pound investment in its Telford manufacturing
site included the installation of grit blast and paint booths. Additional
works to complete the facility upgrade ready for Challenger 3 and Boxer
production are progressing as planned.
Australia
Work on the Hunter Class Frigate programme continues, with three prototype
blocks now under construction. Following the successful achievement of the
Systems Definition Review, the programme is now undergoing a Preliminary
Design Review process, which is a technical evaluation that ensures the design
is operationally effective and sets the pace for detailed design and planning
phases. The business and the Commonwealth of Australia have agreed to revise
the cut steel date for the first ship, which will allow an accelerated build
schedule as greater design maturity will reduce the risk of rework, allowing
the ships to be built more efficiently.
The Jindalee Operational Radar Network programme is delivering against
schedule and operational support continues to meet availability requirements.
Trials of prototype technology have been successfully demonstrated to the
customer at site and proven the maturity of the hardware design.
Hawk Mk127 Lead-In Fighter aircraft availability continues to meet customer
expectations for Australian Defence Force pilot training.
F-35 Sustainment activity is continuing to build at Williamtown across the
South Pacific Regional Airframe Depot, Squadron Operational Maintenance
Support and Warehousing.
The Maritime Sustainment line of business is achieving significant progress
with the recent undocking of HMAS Toowoomba at the Henderson Shipyard in
Western Australia. HMAS Ballarat and HMAS Stuart are currently the focus of
significant upgrade activity in the shipyard.
Red Ochre LABS, our internal Australian R&D hub, continues to grow.
Expertise is being developed and exploited in autonomous systems, high speed
weapons, high frequency systems and electronic warfare. Emerging and
disruptive technologies are being applied to deliver complex solutions like
common autonomous architectures, artificially intelligent uncrewed ground
vehicles and leading electronic support measures like Mantlet(©).
Looking forward
Maritime
There is a positive outlook based on long-term contracted positions on major
programmes and an increasing pipeline of opportunities. Within Submarines, the
business is executing on two long-term build programmes, Astute and
Dreadnought, and has commenced early-stage design activities for SSNR. On the
Astute Class programme, the fifth of class vessel is undergoing final
commissioning activities and the two remaining boats are in build. On the
Dreadnought programme, manufacturing activities continue on the first two
boats of a four-boat programme. Investment continues in the Barrow facilities
in order to provide the capabilities to deliver these long-term programmes
through the decade and beyond. On the SSNR programme, work has recently begun
on the Functional Design. In shipbuilding, sales through the decade and beyond
are underpinned by the manufacture of Type 26 frigates. The through-life
support of surface ship platforms provides a sustainable business in technical
services and mid-life upgrades.
The Australian business has long-term sustainment and upgrade activities in
maritime, air, wide-area surveillance, missile defence and electronic systems.
It has expanded into ship design and production on the Hunter Class Frigate
programme, which will drive growth in the coming years.
Land UK
Future work will be underpinned by existing support contracts and the
contracted workshare on the Mechanised Infantry Vehicle and Challenger 3 Main
Battle Tank programmes. Munitions supply continues under the Munitions
Acquisition Supply Solution partnering agreement which will be followed in
2023 by the recently-agreed 15-year Next Generation Munitions Supply Solution.
Segmental performance: Cyber & Intelligence
Cyber & Intelligence, with 10,900 employees(1), comprises the US-based
Intelligence & Security business and the newly-formed UK-headquartered
Digital Intelligence business, and covers the Group's cyber security, secure
government and defence, and data and digital activities.
Financial performance(2)
Financial performance measures as defined by the Group(3) Financial performance measures derived from IFRS(4)
Six months ended Six months ended Year Six months ended Six months ended Year
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2021(2)
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2022
Sales £1,050m £944m £1,923m Revenue £1,050m £944m £1,923m
Underlying EBIT £123m £97m £179m Operating profit £108m £95m £177m
Return on sales 11.7% 10.3% 9.3% Return on revenue 10.3% 10.1% 9.2%
Operating business cash flow £106m Cash flow from operating activities £85m £118m £233m
£69m £201m
Order intake £1,254m £1,161m £2,034m Order book £1.6bn £1.3bn £1.2bn
Order backlog £2.3bn £1.9bn £1.8bn
- The Digital Intelligence business saw 7% sales growth driven by good
utilisation and performance. The US Intelligence & Security business grew
sales by 6% on a constant currency basis(5), driven by the Bohemia Interactive
Simulations acquisition. On a reported exchange rate basis, segment sales were
up 11.2%.
- Return on sales was 11.7%, an expansion of 140bps led by good
utilisation and programme performance.
- Operating business cash flow in the first half of the year was £69m.
- Order backlog remained in line with the year-end, with a book-to-bill
ratio(6) of 1.2.
1. Including share of equity accounted investments.
2. Financial information for 2021 in relation to the Cyber &
Intelligence segment has been re-presented to reflect the organisational
changes which took effect at the start of 2022, when the Group established its
Digital Intelligence business, bringing together the Group's non-US digital
and data capabilities to further strengthen how we deliver these services and
capabilities for our customers. See note 2 for further details of the
re-presentation.
3. For alternative performance measure definitions see glossary on
page 9.
4. International Financial Reporting Standards.
5. Current period compared with prior period translated at current
period exchange rates.
6. Ratio of Order intake to Sales.
Operational performance
Intelligence & Security
Air and Space Force Solutions
On the US Air Force Intercontinental Ballistic Missile Integration Support
Contractor (ISC) programme, we continue to provide programme management,
systems engineering, integration and testing, sustainment and cyber defence
support, with cumulative funding approaching the previously increased $1.25bn
(£1.0bn) contractual ceiling. In late June, the Air Force announced we were
awarded the recompete of the program under an 18-year ISC 2.0 contract with a
ceiling value of $12bn (£10bn). This award has been protested, as sometimes
happens, with a protest decision expected during the second half.
We were awarded a $15m (£12m) Indefinite Delivery, Indefinite Quantity
contract by the Naval Air Warfare Aircraft Division to integrate the C-27J
into the US Coast Guard's (USCG) Medium Range Surveillance Aircraft Fleet. The
aircraft will help the USCG to fulfil its maritime patrol, drug and migrant
interdiction, disaster response, and search and rescue missions more
effectively.
The business successfully completed prototype tests of its Multiple Object
Tracking Radar, a mobile instrumentation radar, demonstrating its ability to
meet critical performance parameters - range, transportability, accuracy, and
beacon tracking - that other radars of comparable cost, size, weight and power
cannot.
Integrated Defense Solutions
I&S continues to perform on the five-year, $478m (£393m) sole-source
contract to continue supporting weapon systems on board US Ohio and UK
Vanguard Class submarines, as well as future US Columbia Class and UK
Dreadnought Class submarines.
The U.S Army has awarded I&S a $699m (£575m), five-year contract for
Defense Supercomputing Resource Center operations, maintenance, and management
services. We will provide technical support to advance high-performance
computer services, capabilities, and infrastructure across five sites in the
US.
Intelligence Solutions
We were awarded one of the prime positions on a multi-award $300m (£247m)
Indefinite Delivery, Indefinite Quantity contract to support critical mission
operations for a government customer.
BAE Systems continues to execute on a $506m (£416m) contract to provide
industry-leading and multi-disciplinary analytic support capabilities
supporting first responders, war fighters and policy makers. These tailored
analytic services span a multitude of mission specifications and operating
environments. Services include, but are not limited to: source discovery and
collection; time-dominant and long-term analytic assessments; cartographic
production; and multi-media content generation.
In March, we completed the acquisition of Bohemia Interactive Simulations
(BISim), a global software developer of simulation and training solutions for
military organisations around the world. BISim has more than 325 employees in
the US, UK, Australia, the Czech Republic and Slovakia. Since the acquisition,
BISim was awarded the £7.5m DVS2 contract by the UK Ministry of Defence,
continuing its delivery of the standard for virtual training.
Digital Intelligence
The business performed strongly in the first half of 2022, with the order
backlog growing in the period. The business delivered revenue and profit
growth with National Security, C5ISR and Digital Defence Services remaining
the key drivers of growth. C5ISR includes Command, Control, Computers,
Communication, Cyber, Intelligence, Surveillance and Reconnaissance
activities.
Programme execution continues to be strong and well controlled across all
areas supporting underlying margin growth. Operating costs continue to be
tightly controlled with investment expenditure being prioritised.
Government businesses
Within National Security, operational cyber and digital transformation remain
the focus areas, and the business is prioritising growth in these areas
through resourcing and geographical presence. The key framework through which
most of the business is operated has been renewed and customers are keen to
secure work with us for multiple years which provides certainty in the form of
backlog going forward. The business continues to invest in future talent
through development academies.
The International Government business continues to be successful in delivering
key programmes into its existing customers, and challenges in overseas travel
continue to be overcome. Bidding activity into new markets has picked up as a
result of COVID-19 restrictions around the world generally easing through the
first half of the year. Recruitment of staff with niche skills remains a
challenge.
The UK Central Government business has renewed various key programmes across
the Foreign, Commonwealth & Development Office, UK Border Force and Health
sectors. The team also won a procurement to be the Delivery Partner for the
Super Computer Exploitation Programme at the Met Office, which will enable us
to continue to co-ordinate and assure the delivery for the programme for five
years.
Within our Digital Defence Services business customer demand for product and
service solutions remains high. In-Space Missions has built a satellite which
will be the first to be launched from UK soil this summer, in a collaboration
between the Ministry of Defence and international partners.
Financial Services
Agreement signed for the sale of BAE Systems' financial crime detection
business from Cyber & Intelligence with completion expected in the coming
months.
Looking forward
Intelligence & Security
The outlook for the US government services sector is robust with the
opportunity for mid-term growth, although market conditions remain highly
competitive and continue to evolve in response to shifting government
priorities. The US business remains well positioned and will continue to
leverage its established market positions and reputation for reliable and
adaptable performance to meet customer demands for innovative, cost-effective
and cyber-hardened solutions to pursue both recompeted contracts and new
business across its portfolio of systems integration, sustainment and
modernisation solutions for military and intelligence customers.
Digital Intelligence
The services and products we offer in Digital Intelligence are focussed on
ensuring that we are well placed to deliver growth as UK cyber, data and
digital budgets increase and cyber security and information advantage continue
to be an important part of a nation's security and economic prosperity.
Government, Defence and Space continue to be our key target markets, both in
the UK and overseas.
Responsibility statement of the directors in respect of the half-yearly
financial report
Each of the directors (as detailed below) confirms that to the best of his /
her knowledge:
- The condensed set of financial statements has been prepared in accordance
with United Kingdom adopted International Accounting Standard 34 Interim
Financial Reporting.
- The interim management report on pages 1 to 33 includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules (DTR), being
an indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
(b) DTR 4.2.8R of the DTR, being related party transactions that have taken
place in the first six months of the current financial year and that have
materially affected the financial position or the performance of the Company
during that period; and any changes in the related party transactions
described in the last annual report that could do so.
For and on behalf of the directors:
Sir Roger Carr
Chairman
27 July 2022
Directors
Sir Roger Carr Chairman
Charles Woodburn Chief Executive
Tom Arseneault President and Chief Executive Officer of BAE Systems, Inc.
Brad Greve Group Finance Director
Nick Anderson Non-executive director
Crystal E. Ashby Non-executive director
Dame Elizabeth Corley Non-executive director
Jane Griffiths Non-executive director
Chris Grigg Non-executive director
Ewan Kirk Non-executive director
Stephen Pearce Non-executive director
Nicole Piasecki Non-executive director
Independent review report to BAE Systems plc
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises the Condensed consolidated income statement, the
Condensed consolidated statement of comprehensive income, the Condensed
consolidated statement of changes in equity, the Condensed consolidated
balance sheet, the Condensed consolidated cash flow statement and related
notes 1 to 15.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group will be
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE (UK), however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statement in the half-yearly financial report. Our conclusion, including our
Conclusions Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued by the
Financial Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for the conclusions
we have formed.
Deloitte LLP
Statutory Auditor
London
United Kingdom
27 July 2022
Condensed consolidated income statement (unaudited)
Six months ended
Six months ended
30 June 2021
30 June 2022
Notes £m £m £m £m
Continuing operations
Revenue 2 9,739 9,339
Operating costs (8,816) (8,475)
Other income 58 403
Share of results of equity accounted investments 47 36
Operating profit 2 1,028 1,303
Financial income(1) 13 13
Financial expense(1) (262) (165)
Net finance costs 3 (249) (152)
Profit before taxation 779 1,151
Taxation expense 4 (132) (49)
Profit for the period 647 1,102
Attributable to:
Equity shareholders 615 1,000
Non-controlling interests 32 102
647 1,102
Earnings per share 5
Basic earnings per share 19.6p 31.3p
Diluted earnings per share 19.4p 31.1p
1. Gains on foreign exchange for the six months ended 30 June 2021
have been reclassified from financial income to financial expense. See note 3
for details.
Condensed consolidated statement of comprehensive income (unaudited)
Six months ended
Six months ended 30 June 2021
30 June 2022
Other Retained earnings Total Other Retained earnings Total
reserves
£m
£m
reserves
£m
£m
£m
£m
Profit for the period - 647 647 - 1,102 1,102
Other comprehensive income
Items that will not be reclassified to the income statement:
Subsidiaries:
Remeasurements on post-employment benefit schemes - 3,142 3,142 - 2,157 2,157
Tax on items that will not be reclassified to the income statement - - (320) (320)
(351) (351)
Share of the other comprehensive income of associates and joint ventures - 100 100 - 55 55
accounted for using the equity method (net of tax)
Items that may be reclassified to the income statement:
Subsidiaries:
Currency translation on foreign currency net investments 1,008 - 1,008 (111) - (111)
Reclassification of cumulative currency translation reserve on disposal - - - (9) - (9)
Fair value losses arising on hedging instruments during the period (95) - (95) (4) - (4)
Cumulative fair value loss/(gain) on hedging instruments reclassified to the 1 - 1 (23) - (23)
income statement
Tax on items that may be reclassified to the income statement - 24 6 - 6
24
Share of the other comprehensive income of associates and joint ventures 20 - 20 (9) - (9)
accounted for using the equity method (net of tax)
Total other comprehensive income/(expense) for the period (net of tax) 2,891 3,849 (150) 1,892 1,742
958
Total comprehensive income/(expense) for the period 958 3,538 4,496 (150) 2,994 2,844
Attributable to:
Equity shareholders 937 3,493 4,430 (153) 2,892 2,739
Non-controlling interests 21 45 66 3 102 105
958 3,538 4,496 (150) 2,994 2,844
Condensed consolidated statement of changes in equity (unaudited)
Attributable to equity holders of BAE Systems plc
Issued Share Other Retained earnings Total Non-controlling Total
share
premium
reserves
£m
£m
interests
equity
capital
£m
£m
£m
£m
£m
Balance at 1 January 2022 85 1,252 5,887 212 7,436 232 7,668
Profit for the period - - - 615 615 32 647
Total other comprehensive income for the period - - 937 2,878 3,815 34 3,849
Total comprehensive income for the period - - 937 3,493 4,430 66 4,496
Share-based payments (inclusive of tax) - - - 66 66 - 66
Cumulative fair value loss on hedging instruments transferred to the balance - - 5 - 5 - 5
sheet (net of tax)
Ordinary share dividends - - - (480) (480) (75) (555)
Purchase of own shares (1) - 1 (130) (130) - (130)
At 30 June 2022 84 1,252 6,830 3,161 11,327 223 11,550
Balance at 1 January 2021 87 1,249 5,923 (2,616) 4,643 278 4,921
Profit for the period - - - 1,000 1,000 102 1,102
Total other comprehensive income for the period - - (153) 1,892 1,739 3 1,742
Total comprehensive income/(expense) for the period - - (153) 2,892 2,739 105 2,844
Share-based payments (inclusive of tax) - - - 44 44 - 44
Cumulative fair value gain on hedging instruments transferred to the balance - - (28) - (28) - (28)
sheet (net of tax)
Ordinary share dividends - - - (461) (461) (172) (633)
At 30 June 2021 87 1,249 5,742 (141) 6,937 211 7,148
Condensed consolidated balance sheet (unaudited)
Notes 30 June 31 December 2021
2022 £m
£m
Non-current assets
Intangible assets 12,616 11,716
Property, plant and equipment 3,058 2,852
Right-of-use assets 1,472 1,091
Investment property 65 67
Equity accounted investments 634 554
Other investments 96 76
Other receivables 475 551
Post-employment benefit surpluses 6 1,583 483
Other financial assets 334 305
Deferred tax assets 263 622
20,596 18,317
Current assets
Inventories 951 811
Trade, other and contract receivables 5,930 4,825
Current tax 92 71
Other financial assets 354 194
Cash and cash equivalents 1,956 2,917
Assets held for sale 56 -
9,339 8,818
Total assets 29,935 27,135
Non-current liabilities
Loans (5,136) (4,604)
Lease liabilities (1,418) (1,083)
Contract liabilities (466) (519)
Other payables (1,306) (1,248)
Post-employment benefit obligations 6 (643) (2,607)
Other financial liabilities (296) (302)
Deferred tax liabilities - (77)
Provisions (344) (331)
(9,609) (10,771)
Current liabilities
Loans and overdrafts (53) (457)
Lease liabilities (224) (212)
Contract liabilities (3,036) (2,874)
Trade and other payables (4,867) (4,636)
Other financial liabilities (268) (214)
Current tax (34) (27)
Provisions (259) (276)
Liabilities held for sale (35) -
(8,776) (8,696)
Total liabilities (18,385) (19,467)
Net assets 11,550 7,668
Capital and reserves
Issued share capital 84 85
Share premium 1,252 1,252
Other reserves 6,830 5,887
Retained earnings 3,161 212
Total equity attributable to equity holders of BAE Systems plc 11,327 7,436
Non-controlling interests 223 232
Total equity 11,550 7,668
Condensed consolidated cash flow statement (unaudited)
Notes Six months ended Six months ended
30 June 2022
30 June
£m 2021
£m
Profit for the period 647 1,102
Taxation expense 132 49
Adjustment in respect of research and development expenditure credits (19) (12)
Share of results of equity accounted investments (47) (36)
Net finance costs 249 152
Depreciation, amortisation and impairment 361 337
Profit on disposal of property, plant and equipment, and investment property (2) (181)
Gain on disposal of businesses and non-current other investments (7) (157)
Cost of equity-settled employee share schemes 47 43
Movements in provisions (28) (62)
Difference between pension funding contributions paid and the pension charge 25 7
(Increase)/decrease in working capital:
Inventories (74) (26)
Trade, other and contract receivables (692) (192)
Trade and other payables 69 (285)
Taxation paid (168) (116)
Net cash flow from operating activities 493 623
Dividends received from equity accounted investments 87 11
Interest received 9 12
Principal element of finance lease receipts 5 5
Purchases of property, plant and equipment, and investment property (176) (146)
Purchases of intangible assets (28) (38)
Purchase of non-current other investments (8) -
Proceeds from sale of property, plant and equipment, and investment property 4 251
Proceeds from sale of non-current other investments 7 -
Purchase of subsidiary undertakings, net of cash and cash equivalents acquired 11 (162) (15)
Cash flow in respect of held for sale assets and business disposals, net of 12
cash and cash equivalents disposed
1 202
Net cash flow from investing activities (261) 282
Interest paid (128) (129)
Equity dividends paid 7 (480) (461)
Purchase of own shares (130) -
Dividends paid to non-controlling interests (75) (172)
Partial disposal of shareholding in subsidiary undertaking - 27
Principal element of lease payments (142) (128)
Cash inflow from derivative financial instruments (excluding cash flow hedges) 160 20
Cash outflow from derivative financial instruments (excluding cash flow (53) (101)
hedges)
Cash flow from movement in cash collateral - (4)
Cash outflow from repayment of loans (400) -
Net cash flow from financing activities (1,248) (948)
Net decrease in cash and cash equivalents (1,016) (43)
Cash and cash equivalents at 1 January 2,917 2,667
Effect of foreign exchange rate changes on cash and cash equivalents 55 (15)
Cash and cash equivalents at end of period 1,956 2,609
Comprising:
Cash and cash equivalents 1,956 2,611
Overdrafts - (2)
Cash and cash equivalents at end of period 1,956 2,609
Notes to the condensed half-yearly financial statements
1. Preparation
Basis of preparation and statement of compliance
The annual financial statements of the company will be prepared in accordance
with United Kingdom adopted international accounting standards (IFRS). The
condensed consolidated set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting". These condensed consolidated half-yearly financial statements do
not comprise statutory accounts within the meaning of Section 435 of the
Companies Act 2006 and should be read in conjunction with the Annual Report
2021. The comparative figures for the year ended 31 December 2021 are not the
Group's statutory accounts for that financial year. Those financial statements
have been reported upon by the Group's auditor and delivered to the registrar
of companies. The report of the auditor was unqualified, did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report and did not contain statements under
Section 498 (2) or (3) of the Companies Act 2006.
The accounting policies adopted in the preparation of these condensed
consolidated half-yearly financial statements to 30 June 2022 are consistent
with the accounting policies applied by the Group in its consolidated
financial statements as at, and for the year ended, 31 December 2021 as
required by the Disclosure Guidance and Transparency Rules of the UK's
Financial Conduct Authority.
New and amended standards adopted by the Group
No new or amended standards which became applicable for the current reporting
period had a material impact on the Group or required the Group to change its
accounting policies.
Key Sources of estimation uncertainty
The application of the Group's accounting policies requires the use of
estimates. Recent global macroeconomic events have resulted in increased
uncertainty on costs and supply chains. While this uncertainty continues, the
Group will need to consider a range of estimates and assumptions in the
application of its accounting policies and management's assessment of the
carrying values of assets and liabilities. In the event that these estimates
or assumptions prove to be incorrect, there may be an adjustment to the
carrying values of assets and liabilities within the next year. Potential
areas of the Group's financial statements which could be materially impacted
may include, but are not limited to:
Revenue and profit recognition on contracts
The Group accounts for revenue in accordance with IFRS 15 Revenue from
Contracts with Customers. For most of the Group's contracts, revenue and
associated margin are recognised progressively over time as costs are
incurred, and as risks have been mitigated or retired.
The ultimate profitability of contracts is based on estimates of revenue and
costs, including allowances for technical and other risks which are reliant on
the knowledge and experience of the Group's project managers, engineers and
finance and commercial professionals. Material changes in these estimates
could affect the profitability of individual contracts. Revenue and cost
estimates are reviewed and updated at least quarterly, and more frequently as
determined by events or circumstances.
The long-term nature of many of the Group's contracts means that judgements
are made in estimating future costs on a contract, as well as when risks will
be mitigated or retired. The impact of global supply chain issues, volatility
in global gas and energy prices, and the ongoing response to climate change,
have increased uncertainty in relation to these judgements and estimates. The
Group continues to work closely and collaboratively with its key customers to
continue to deliver effectively on its contracts and commitments. However, the
volume, scale, complexity and long-term nature of its programmes mean that a
range of calculated potential sensitivities would be wide-ranging and not
practicable to calculate. Owing to the ongoing uncertainty regarding the
potential future impact of the current uncertainties, the Group's estimates
and assumptions related to revenue recognition could be impacted by issues
such as reduced productivity as a result of operation disruption, production
delays and increased costs as a result of disruption to the supply chain,
changing working practices to move towards net zero, or where there is
uncertainty as to the recovery from customers of programme costs incurred.
In 2021, the Group recognised £0.3bn of revenue in respect of performance
obligations satisfied or partially satisfied in previous periods (2020
£0.3bn). This continues to provide an approximation of the potential revenue
sensitivity arising as a result of management's estimates and assumptions for
variable consideration, future costs, and technical and other risks. However
this may not reflect the full potential impact on the contract receivables and
contract liabilities balances.
Post-employment benefit obligations
A number of actuarial assumptions are made in assessing the value of
post-employment benefit obligations, including discount rate, inflation rate,
and mortality assumptions. For each of the actuarial assumptions used there is
a wide range of possible values. Management estimates a point within that
range which most appropriately reflects the Group's circumstances.
If estimates relating to these actuarial assumptions are no longer valid or
change due to changing economic and social conditions, then the potential
obligations due under these schemes could change significantly.
Discount and inflation rates could change significantly as a result of a
prolonged economic downturn, monetary policy decisions and interventions or
other macroeconomic issues. The impact of estimates made with regard to
mortality projections may also change significantly, given the uncertainty in
this area resulting from the COVID-19 pandemic.
Similarly, the values of many assets are subject to estimates and assumptions,
in particular those which are held in unquoted pooled investment vehicles. The
associated fair value of these unquoted pooled investments is estimated with
consideration of the most recently available valuations provided by the
investment or fund managers. These valuations inherently incorporate a number
of assumptions including the impact of climate change on the underlying
investments. The overall level of estimation uncertainty in valuing these
assets could therefore give rise to a material change in valuation within the
next 12 months.
Furthermore, estimates are required around the Group's ability to access its
defined benefit surpluses, and on what basis, which then determines the
associated rate of tax to apply. Depending on the outcome, judgement is then
required to determine the presentation of any tax payable in recovering a
surplus.
Note 6 provides more information on the key assumptions and analysis of their
sensitivities.
Critical Judgements made in applying accounting policies
As noted in the 2021 Annual Report, no critical judgements have been made in
the process of applying the Group's accounting policies, other than those
involving estimates, that have had a significant effect on the amounts
recognised in the financial statements.
2. Segmental analysis(1)
Sales(2) and revenue by reporting segment
Sales(2) Deduct: Add: Revenue
Share of revenue of equity accounted investments
Subsidiaries' revenue from equity accounted investments
Six months Six months ended Six months ended Six months ended Six months Six months ended Six months ended Six months
ended
30 June
30 June 2022
30 June
ended
30 June 2021(1)
30 June 2022
ended
30 June 2022
2021(1)
£m
2021(1)
30 June 2022
£m
£m
30 June
£m
£m
£m
£m
2021(1)
£m
Electronic Systems 2,276 2,142 (27) (26) 27 26 2,276 2,142
Platforms & Services 1,638 1,595 (22) (32) - 2 1,616 1,565
Air 3,497 3,394 (1,207) (1,039) 573 491 2,863 2,846
Maritime 2,155 2,028 (58) (29) 3 1 2,100 2,000
Cyber & Intelligence 1,050 944 - - - - 1,050 944
HQ 157 113 (152) (110) - - 5 3
10,773 10,216 (1,466) (1,236) 603 520 9,910 9,500
Intra-group sales/revenue (192) (181) 7 3 14 17 (171) (161)
10,581 10,035 (1,459) (1,233) 617 537 9,739 9,339
Intra-group revenue Revenue from external customers
Six months Six months ended Six months ended Six months
ended
30 June 2021(1)
30 June 2022
ended
30 June 2022
£m
£m
30 June
£m
2021(1)
£m
Electronic Systems 54 46 2,222 2,096
Platforms & Services 17 18 1,599 1,547
Air 12 19 2,851 2,827
Maritime 27 35 2,073 1,965
Cyber & Intelligence 56 40 994 904
HQ 5 3 - -
171 161 9,739 9,339
Sales(2) and revenue by customer location
Sales(2) Revenue
Six months Six months ended Six months ended Six months
ended
30 June 2021
30 June 2022
ended
30 June 2022
£m
£m
30 June
£m
2021
£m
UK 2,603 2,388 2,036 1,927
Rest of Europe 839 644 840 635
US 4,653 4,332 4,648 4,330
Canada 57 70 57 70
Saudi Arabia 1,061 1,225 1,069 1,204
Qatar 531 527 429 484
Rest of Middle East 156 185 114 142
Australia 416 367 416 366
Rest of Asia and Pacific 209 220 112 172
Africa, and Central and South America 56 77 18 9
10,581 10,035 9,739 9,339
Revenue from external customers by
domain
Six months ended Six months ended
30 June 2022 30 June 2021(1)
Air Maritime Land Cyber Total Air Maritime Land Cyber Total
£m
£m
£m
£m
£m
£m
£m
£m
£m £m
Electronic Systems 1,993 76 153 - 2,222 1,818 59 219 - 2,096
Platforms & Services 18 474 1,107 - 1,599 17 494 1,036 - 1,547
Air 2,835 16 - - 2,851 2,808 19 - - 2,827
Maritime 113 1,792 168 - 2,073 124 1,691 150 - 1,965
Cyber & Intelligence 131 209 74 580 994 141 213 63 487 904
HQ - - - - - - - - - -
5,090 2,567 1,502 580 9,739 4,908 2,476 1,468 487 9,339
Underlying EBIT(2) and operating profit/(loss) by reporting segment
Underlying Non-recurring Amortisation of Financial and taxation expense of equity accounted investments Operating
EBIT(2)
items(3)
programme, customer-related and other intangible assets
profit/(loss)
Six months ended 30 June 2022 Six months ended 30 June 2021(1) Six months ended 30 June 2022 Six months ended Six months ended Six months ended Six months ended 30 June 2022 Six months ended Six months ended 30 June 2022 Six
£m
£m
£m
30 June 2021(1)
30 June 2022
30 June 2021(1)
£m
30 June 2021(1)
£m
months ended
£m
£m
£m
£m
30 June 2021(1)
£m
Electronic Systems 359 335 - 33 (43) (41) - - 316 327
Platforms & Services 146 109 - - - - (3) (2) 143 107
Air 362 360 (1) 131 - - (16) (15) 345 476
Maritime 182 184 - - - - (2) (2) 180 182
Cyber & Intelligence 123 97 (7) - (8) (2) - - 108 95
HQ (60) (57) - 182 - - (4) (9) (64) 116
1,112 1,028 (8) 346 (51) (43) (25) (28) 1,028 1,303
Net finance costs (249) (152)
Profit before taxation 779 1,151
Taxation expense (132) (49)
Profit for the period 647 1,102
Performance obligations
The Group's order book(4), reconciled to order backlog as defined by the
Group, is shown below.
30 June 31 December 2021
2022
£bn
£bn
Order backlog as defined by the Group 52.7 44.0
Deduct: Unfunded order backlog (2.4) (2.3)
Deduct: Share of order backlog of equity accounted investments (12.0) (10.1)
Add: Order backlog in respect of orders from equity accounted investments 4.2 3.9
Order book(4) 42.5 35.5
Prior year re-presentation
With effect from 2022, the Group has established a new Digital Intelligence
business, bringing together our non‑US digital and data capabilities to
further strengthen how we deliver these services and capabilities for our
customers. The new Digital Intelligence business is reported within the Cyber
& Intelligence segment. In addition our BAE Systems Australia business
transitioned from the Air segment to the Maritime segment. Comparative
segmental financial information for 2021 has been re-presented in this report
to reflect the new business structures. The tables below outline the impact on
the key reported line items:
Six months ended 30 June 2021
Sales(2) Revenue
As reported Adjustment Re-presented As reported Adjustment Re-presented
£m £m £m £m £m £m
Electronic Systems 2,142 - 2,142 2,142 - 2,142
Platforms & Services 1,595 - 1,595 1,565 - 1,565
Air 3,827 (433) 3,394 3,279 (433) 2,846
Maritime 1,656 372 2,028 1,628 372 2,000
Cyber & Intelligence 861 83 944 861 83 944
HQ 129 (16) 113 19 (16) 3
10,210 6 10,216 9,494 6 9,500
Intra-group sales/revenue (175) (6) (181) (155) (6) (161)
10,035 - 10,035 9,339 - 9,339
Six months ended 30 June 2021
Underlying EBIT(2) Operating Profit
As reported Adjustment Re-presented As reported Adjustment Re-presented
£m £m £m £m £m £m
Electronic Systems 335 - 335 327 - 327
Platforms & Services 109 - 109 107 - 107
Air 407 (47) 360 522 (46) 476
Maritime 149 35 184 146 36 182
Cyber & Intelligence 84 13 97 84 11 95
HQ (56) (1) (57) 117 (1) 116
1,028 - 1,028 1,303 - 1,303
1. With effect from 2022, the Group has established a new Digital
Intelligence business, bringing together our non-US digital and data
capabilities to further strengthen how we deliver these services and
capabilities for our customers. The new Digital Intelligence business is
reported within the Cyber & Intelligence segment. In addition our BAE
Systems Australia business transitioned from the Air segment to the Maritime
segment. Comparative segmental financial information for 2021 has been
re-presented in this report to reflect the new business structures.
2. Sales and underlying EBIT are alternative performance measures
defined in the Financial glossary on page 9, they are presented here as our
internal measure of segmental performance, to provide additional information
on performance to the user, and to reconcile to the equivalent IFRS measure.
3. Non-recurring items in 2022 comprises £8m related to current and
historical business transactions. (2021 comprises a £182m gain on disposal of
investment property in HQ, a £7m gain in Electronic Systems in relation to a
historical acquisition, and £157m from gains on disposal of subsidiaries and
equity accounted investments recognised in Electronic Systems (£26m) and Air
(£131m). £63m of the gain on disposal of AEC recognised in 2021 is
attributable to non-controlling interest, details of which are available in
note 12).
4. Order book represents the transaction price allocated to
unsatisfied and partially satisfied performance obligations as defined by IFRS
15 Revenue from Contracts with Customers.
3. Net finance costs
Six months ended Six months ended 30 June 2021
30 June
£m
2022
£m
Financial income(1) 13 13
Financial expense(1) (262) (165)
Group net finance costs (249) (152)
Net finance costs:
Group (249) (152)
Share of equity accounted investments (9) (15)
Total of Group and equity accounted investments' finance costs (258) (167)
Analysed as:
Underlying net interest expense(2):
Group (117) (110)
Share of equity accounted investments (5) (12)
(122) (122)
Other:
Group:
Net interest expense on post-employment benefit obligations (19) (33)
Fair value and foreign exchange adjustments on financial instruments and (113) (9)
investments
Share of equity accounted investments:
Net interest expense on post-employment benefit obligations (1) (1)
Fair value and foreign exchange adjustments on financial instruments and (3) (2)
investments
Total of Group and equity accounted investments finance costs (258) (167)
1. £80m of gains on foreign exchange for the six months ended 30 June
2021 have been reclassified from financial income to financial expense, as the
gains relate to the same underlying transactions as the fair value loss on
remeasurement of financial instruments presented therein.
2. Underlying net interest expense is an alternative performance
measure defined in the Financial glossary on page 9, it is presented here to
provide additional information on performance to the user, and to reconcile to
the equivalent IFRS measure.
4. Taxation
Taxation expense
Six months ended Six months ended
30 June
30 June 2021
2022
£m
£m
Taxation expense (132) (49)
Calculation of the underlying effective tax rate
Six months ended Six months ended 30 June 2021
30 June
£m
2022
£m
Profit before taxation 779 1,151
Add back: Taxation expense of equity accounted investments 16 13
Add back / (deduct): Taxable non-recurring items 1 (339)
Add back / (deduct): Non-taxable non-recurring items 7 (7)
Adjusted profit before tax 803 818
Taxation expense (132) (49)
Taxation expense of equity accounted investments (16) (13)
Exclude: one-off tax benefit - (94)
Exclude: tax rate adjustment and taxation adjustments in respect of (6) 6
non-recurring items
Adjusted taxation expense (including equity accounted investments) (154) (150)
19% 18%
Underlying effective tax rate
The taxation expense has been determined by calculating an estimated annual
tax rate for each country or entity, and then applying those rates to half
year profits or losses.
As at 30 June 2022, an increase in the UK current tax rate has been
substantively enacted, from 19% to 25% with effect from 1 April 2023. An
adjustment has been made to reflect the fact that the UK deferred tax balances
are expected to unwind at 25%. This adjustment has been recorded as a
non-recurring gain of £6m (2021 £9m) in the condensed consolidated income
statement, as a gain of £13m (2021 £101m) in the condensed consolidated
statement of comprehensive income, and as a gain of £1m (2021 £nil) in the
condensed consolidated statement of changes in equity.
The one-off tax benefit in 2021 of £94m was in respect of agreements reached
regarding the exposure arising from the April 2019 European Commission
decision regarding the UK's Controlled Foreign Company regime.
The Group's underlying effective tax rate is sensitive to the geographic mix
of profits and may be impacted when multiple territories implement the
Organisation for Economic Co-operation and Development's Global Anti-Base
Erosion Model Rules (Pillar Two). It is not currently possible to accurately
assess the impact of the model rules or draft UK legislation, but we will
continue to monitor their progress as they proceed towards statutory
enactment.
5. Earnings per share
Six months ended Six months ended
30 June 2022
30 June 2021
£m Basic Diluted pence £m Basic Diluted pence
pence
per share
pence
per share
per share
per share
Profit for the period attributable to equity shareholders 615 1,000
19.6 19.4 31.3 31.1
Add back/(deduct):
Amortisation of programme, customer-related and other intangible assets, post 41 35
tax(1)
Net interest expense on post-employment benefit obligations, post tax(1)
17 27
Fair value and foreign exchange adjustments on financial instruments and
investments, post tax(1)
93 10
Non-recurring items attributable to shareholders, post tax(2) 2 (277)
Underlying earnings(3) attributable to shareholders, post tax 768 24.5 24.3 795 24.8 24.7
One-off tax benefit - (94)
Underlying earnings(3) attributable to shareholders, excluding one-off tax 768 24.5 24.3 701 21.9 21.8
benefit
Millions Millions Millions
Millions
Weighted average number of shares used in calculating basic earnings per share 3,131 3,200
3,131 3,200
Incremental shares in respect of employee share schemes
32 19
Weighted average number of shares used in calculating diluted earnings per
share
3,163 3,219
1. The tax impact, where applicable, is calculated using the
underlying effective tax rate of 19% (2021 18%).
2. In 2021, £63m of the gain on disposal of AEC was attributable to
non-controlling interest. Therefore, only the gain attributable to
shareholders has been removed in calculating the underlying earnings
attributable to shareholders. See note 12 for more details. The tax on
non-recurring items has been determined using the actual tax due on those
items, see note 4 for details.
3. Underlying earnings per share is an alternative performance measure
defined in the Financial glossary on page 9, it is presented here to provide
additional information on performance to the user, and to reconcile to the
equivalent IFRS measure.
6. Post-employment benefits
UK US and Total
£m
other
£m
£m
Total net IAS 19 deficit at 1 January 2022 (1,973) (313) (2,286)
Actual return on assets excluding amounts included in net interest expense (2,808) (978) (3,786)
Decrease in liabilities due to changes in assumptions and experience 7,236 853 8,089
Contributions in excess of / (below) service cost (15) (5) (20)
Past service cost - plan amendments - 3 3
Net interest expense (16) (3) (19)
Foreign exchange adjustments - (32) (32)
Movement in other schemes - 14 14
Withholding tax on surpluses (889) - (889)
Total net IAS 19 surplus/(deficit) at 30 June 2022 1,535 (461) 1,074
Allocated to equity accounted investments (134) - (134)
Group's share of net IAS 19 surplus/(deficit) excluding Group's share of 1,401 (461)
amounts allocated to equity accounted investments at 30 June 2022
940
Represented by:
Post-employment benefit surpluses 1,507 76 1,583
Post-employment benefit obligations (106) (537) (643)
1,401 (461) 940
Principal actuarial assumptions
The assumptions used are estimates chosen from a range of possible actuarial
assumptions which, due to the long-term nature of the obligation covered, may
not necessarily occur in practice.
The Group has used the Continuous Mortality Investigation (CMI) 2021 data for
the UK demographic assumptions at 30 June 2022, reflecting the Group's best
estimate of mortality at this time. In line with the CMI guidance, the Group
has chosen to apply a weighting to the 2021 data, in recognition of the
abnormal excess deaths as a result of COVID-19. No further adjustments have
been made to the improvements expected in future years. The impacts of
COVID-19 will continue to be monitored and assessed at future reporting dates.
UK US
30 June 31 December 30 June 31 December
2022
2021
2022
2021
Financial assumptions
Discount rate - past service (%) 3.8 1.9 4.6 2.8
Discount rate - future service (%) 3.8 1.9 4.6 2.8
Retail Prices Index (RPI) inflation (%) 2.8 3.1 n/a n/a
Rate of increase in salaries (%) 2.8 3.1 n/a n/a
Rate of increase in deferred pensions (%) 2.1/2.8 2.4/3.1 n/a n/a
Rate of increase in pensions in payment (%) 1.6-3.6 1.7-3.7 n/a n/a
Demographic assumptions
Life expectancy of a male currently aged 65 (years) 86-89 86-89 87 87
Life expectancy of a female currently aged 65 (years) 88-90 88-90 89 89
Life expectancy of a male currently aged 45 (years) 87-90 86-90 87 87
Life expectancy of a female currently aged 45 (years) 89-91 89-91 89 88
Surplus/Deficit allocation
MBDA participates in the Group's defined benefit schemes and, as these are
multi-employer schemes, the Group has allocated a share of the IAS 19 pension
surpluses and deficits to MBDA based on the relative payroll contributions of
active members or actual obligations where known. Whilst this methodology is
intended to reflect a reasonable estimate of the share of the deficit, it may
not accurately reflect the benefits to, or obligations of, the participating
employers.
In the event that an employer who participates in the Group's pension schemes
fails or cannot be compelled to fulfil its obligations as a participating
employer, the remaining participating employers are obliged to collectively
take on its obligations. The Group considers the likelihood of this event
arising as remote.
Surplus recognition
A number of schemes are in an accounting surplus position. The surpluses have
been recognised on the basis that the future economic benefits are
unconditionally available to the Group, which is assumed to be via a refund.
These have been recognised after deducting a 35% withholding tax which would
be levied prior to the future refunding of any surplus and have been presented
on a net basis as this is not deemed to be an income tax of the Group.
Sensitivity analysis
The sensitivity information has been derived using scenario analysis from the
actuarial assumptions as at 30 June 2022 and keeping all other assumptions the
same.
Financial assumptions
The estimated impact of changes in the discount rate and inflation assumptions
on the defined benefit pension obligation, together with the estimated impact
on scheme assets, is shown in the table below. The estimated impact on scheme
assets takes into account the Group's risk management activities in respect of
interest rate and inflation risk. The sensitivity analysis on the defined
benefit obligation is measured on an IAS 19 accounting basis and, therefore,
does not reflect the natural hedging in the discount rate used for funding
valuation purposes.
Decrease/(increase) (Decrease)/increase in scheme assets(1)
£bn
in pension obligation(1)
£bn
Discount rate:
0.1 percentage point increase/decrease 0.3/(0.4) (0.3)/0.3
0.5 percentage point increase/decrease 1.6/(1.8) (1.3)/1.4
(Increase)/decrease Increase/(decrease) in scheme assets(1)
£bn
in pension obligation(1)
£bn
Inflation:
0.1 percentage point increase/decrease (0.3)/0.3 0.2/(0.2)
0.5 percentage point increase/decrease (0.9)/0.9 0.8/(0.7)
1.0 percentage point increase/decrease (1.8)/1.7 1.7/(1.4)
1. Before allocation to equity accounted investments.
Demographic assumptions
Changes in the life expectancy assumption, including the benefit of longevity
swap arrangements, would have the following effect on the total net IAS 19
surplus:
(Decrease)/increase
in net surplus(1)
£bn
Life expectancy:
One-year increase/decrease (0.9)/0.9
1. Before allocation to equity accounted investments.
7. Equity dividends and share buyback
Equity dividends
Six months ended Six months ended
30 June
30 June
2022
2021
£m
£m
Prior year final 15.2p dividend per ordinary share paid in the period (2021 480 461
14.3p)
The directors have declared an interim dividend of 10.4p per ordinary share in
respect of the period ended 30 June 2022, totalling approximately £328m.
This will be paid on 30 November 2022 to shareholders registered on 21 October
2022. The ex-dividend date is 20 October 2022. This is in line with our usual
dividend timetable.
Shareholders who do not at present participate in the Company's Dividend
Reinvestment Plan and wish to receive the final dividend in shares rather than
cash should complete a mandate form for the Dividend Reinvestment Plan and
return it to the registrars for receipt no later than 9 November 2022.
2021 Share buyback
On 29 July 2021 the Company announced the details of a share buyback programme
to repurchase up to £500m of its own shares over the following 12 months.
During 2021, 63,272,873 shares were purchased for a total price, including
transaction costs, of £371m.
The share buyback programme was completed on 2 February 2022. During 2022, a
further 24,253,065 shares were purchased for a total price, including
transaction costs, of £132m. In total 87,525,938 shares were repurchased
under the scheme for a total price, including transaction costs, of £503m.
These shares were subsequently cancelled, with the nominal value of shares
cancelled deducted from share capital against the capital redemption reserve.
8. Fair value measurement
Fair value of financial instruments
Certain of the Group's financial instruments are held at fair value.
The fair value of a financial instrument is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the balance sheet date.
The fair values of financial instruments held at fair value have been
determined based on available market information at the balance sheet date,
and the valuation methodologies listed below:
- the fair values of forward foreign exchange contracts are calculated
by discounting the contracted forward values and translating at the
appropriate balance sheet rates;
- the fair values of both interest rate and cross-currency swaps are
calculated by discounting expected future principal and interest cash flows
and translating at the appropriate balance sheet rates; and
- the fair values of money market funds are calculated by multiplying
the net asset value per share by the investment held at the balance sheet
date.
Due to the variability of the valuation factors, the fair values presented at
30 June may not be indicative of the amounts the Group would expect to realise
in the current market environment.
Fair value hierarchy
The fair value measurement hierarchy is as follows:
- Level 1 - Quoted prices (unadjusted) in active markets for identical
assets or liabilities;
- Level 2 - Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
- Level 3 - Inputs for the asset or liability that are not based on
observable market data (i.e. unobservable inputs).
Carrying amounts and fair values of certain financial instruments
30 June 2022 31 December 2021
Carrying amount Fair Carrying amount Fair
£m
value
£m
value
£m
£m
Financial instruments measured at fair value:
Non-current
Other investments at fair value through profit and loss 96 96 76 76
Other financial assets 334 334 305 305
Other financial liabilities (296) (296) (302) (302)
Current
Other financial assets 354 354 194 194
Money market funds 462 462 1,171 1,171
Other financial liabilities (268) (268) (214) (214)
Financial instruments not measured at fair value:
Non-current
Loans (5,136) (4,718) (4,604) (5,045)
Current
Cash and cash equivalents (excluding money market funds) 1,494 1,494 1,746 1,746
Loans and overdrafts (53) (53) (457) (462)
All of the financial assets and liabilities measured at fair value are
classified as level 2 using the fair value hierarchy, except for money market
funds, which are classified as level 1, and other investments, which are at a
combination of level 1 and level 3. The total value of investments classified
as level 3 are immaterial. There were no transfers between levels during the
period.
Financial assets and liabilities in the Group's consolidated balance sheet are
either held at fair value or their carrying value approximates to fair value,
with the exception of loans, which are held at amortised cost. The fair value
of loans presented in the table above is derived from market prices,
classified as level 1 using the fair value hierarchy.
9. Financial risk management
Currency risk
The Group's objective is to reduce its exposure to transactional volatility in
earnings and cash flows from movements in foreign currency exchange rates,
mainly the US dollar, euro, Saudi riyal and Australian dollar.
The Group is exposed to movements in foreign currency exchange rates in
respect of foreign currency denominated transactions. All material firm
transactional exposures are hedged and the Group aims, where possible, to
apply hedge accounting to these transactions.
The Group is exposed to movements in foreign currency exchange rates in
respect of the translation of net assets and income statements of foreign
subsidiaries and equity accounted investments. The Group does not hedge the
translation effect of exchange rate movements on the income statements or
balance sheets of foreign subsidiaries and equity accounted investments it
regards as long-term investments.
Credit risk
For trade receivables, contract receivables, amounts due from equity accounted
investments and finance lease receivables, the Group measures a provision for
expected credit losses at an amount equal to lifetime expected credit losses,
estimated by reference to past experience and relevant forward-looking
factors.
The Group's assessment is that credit risk in relation to defence-related
sales to government customers or subcontractors to governments is extremely
low as the probability of default is insignificant; therefore the provision
for expected credit losses is immaterial in respect of receivables from these
customers. For all non-government commercial customers, the Group assesses
expected credit losses, including risks arising from global macroeconomic
events; however this is not considered material to the financial statements.
The Group considers that default has occurred when a non-government commercial
receivable is past 180 days overdue, because historical experience indicates
that these receivables are generally not recoverable. The Group recognises a
provision of 100% against all such receivables over 180 days past due unless
there is evidence that individual receivables in this category are
recoverable.
For contract receivables, amounts due from equity accounted investments and
finance lease receivables the expected credit loss provision is immaterial as
the probability of default is insignificant.
Cash management and borrowing facilities
Cash flow forecasting is performed by the businesses on a monthly basis. The
Group monitors a rolling forecast of its liquidity requirements to ensure that
there is sufficient cash to meet operational needs and maintain adequate
headroom.
The Group aims to maintain adequate undrawn committed borrowing facilities. At
30 June 2022, the Group had a committed Revolving Credit Facility (RCF) of
£2.0bn (31 December 2021 £2.0bn). The RCF was undrawn throughout the period.
The RCF also acts as a backstop to Commercial Paper issued by the Group. At 30
June 2022, the Group had £nil of Commercial Paper in issue (31 December 2021
£nil).
10. Related party transactions
Transactions with related parties occur in the normal course of business, are
priced on an arm's-length basis and settled on normal trade terms. The
transactions with related parties include sales and purchases to entities in
which BAE Systems holds an equity accounted investment.
Transactions with related parties are shown on page 261 of the Annual Report
2021.
Six months ended Six months ended
30 June
30 June
2022
2021
£m
£m
Sales to related parties 617 530
Purchases from related parties 223 186
30 June 31 December
2022
2021
£m
£m
Amounts owed by related parties 47 34
Amounts owed to related parties 1,345 1,137
11. Acquisitions
Businesses acquired during the six month period ended 30 June 2022
On 11 November 2021, the Group announced its intention to acquire 100% of the
share capital of BIS Invest S.a.r.l. and its subsidiaries, together the
Bohemia Interactive Simulations Group (BISim Group) for a consideration of
$200m (£151m). On 4 March 2022 this deal passed all required pre-closing
activities, and the acquisition was completed. Using the latest game-based
technology, the experienced BISim team of engineers develops high-fidelity,
cost-effective training and simulation software products and components to
meet the growing demand for defence applications. BISim is part of the Cyber
& Intelligence segment.
The results and financial position of the acquired business have been
consolidated from the date of acquisition.
Provisional purchase consideration and fair value of net assets acquired
£m
Intangible assets 72
Property, plant and equipment 1
Right of use assets 1
Receivables 10
Deferred tax assets 1
Lease liabilities (1)
Payables (8)
Deferred tax liabilities (14)
Provisions (6)
Cash and cash equivalents 5
Net identifiable assets acquired 61
Goodwill 90
Net assets acquired 151
Satisfied by:
Cash consideration 151
Total consideration 151
The net outflow of cash in respect of the purchase of BISim is as follows:
£m
Cash consideration 151
Cash and cash equivalents acquired (5)
Net cash outflow in respect of the purchase of the business 146
The goodwill recognised is primarily attributable to expected synergies. No
goodwill is expected to be deductible for tax purposes. Goodwill has been
allocated to the Intelligence and Security business. No impairment losses have
been recognised in respect of goodwill in the period ended 30 June 2022.
The acquisition contributed £19m to the Group's revenue and £9m to the
Group's underlying EBIT(1) between the date of acquisition and 30 June 2022.
If it had been completed on 1 January 2022, the Group's revenue from the
acquisition would have been £23m, and the Group's underlying EBIT(1) would
have been £9m for the period ended 30 June 2022.
Contractual cash flows on trade, other and contract receivables are recognised
net of expected credit losses. No contingent liabilities have been recognised
or require disclosure in respect of these acquisitions.
1. Underlying EBIT is an alternative performance measure defined in
the glossary on page 9, it is presented here to provide additional information
on performance to the user.
Businesses acquired during the six month period ended 30 June 2021
On 4 March 2021, the Group acquired 100% of the share capital of Pulse Power
and Measurement Limited for a consideration of £21m. The net assets acquired,
including intangible assets identified, have been valued at £11m, resulting
in a goodwill of £10m. The provisional goodwill was finalised within the
period.
12. Assets held for sale and business disposals
Assets held for sale as at 30 June 2022 and business disposals in the six
month period ended 30 June 2022
On 9 July 2022 the Group entered into an agreement for the sale of BAE
Systems' financial crime detection business from the Digital Intelligence
business in our Cyber & Intelligence segment. This sale is subject to
regulatory and government approvals, and is expected to complete in the next
few months. Therefore, as at half year the assets and liabilities of this
disposal group have been recognised as held for sale.
Assets and liabilities presented as held for sale comprise:
£m
Intangible assets including goodwill 23
Property, plant and equipment 1
Right of use assets 3
Trade, other and contract receivables 20
Cash and cash equivalents 9
Total assets held for sale 56
Lease liabilities (3)
Contract liabilities (15)
Trade and other payables (15)
Provisions (2)
Total liabilities held for sale (35)
Net assets held for sale 21
There were no business disposals in the six months to 30 June 2022.
Assets held for sale as at 30 June 2021 and business disposals in the six
month period ended 30 June 2021
In December 2020, the Group's Overhaul and Maintenance Company (OMC) entered
into a heads of terms for the sale of its 50% shareholding in Advanced
Electronics Company Limited (AEC) to Saudi Arabian Military Industries, and
was reported in the financial statements for the year ending 31 December 2020
as assets held for sale. The sale was completed on 23 February 2021. AEC was
included in the Air segment.
The gain recognised on disposal was as follows:
£m
Cash received or receivable:
Cash 180
Deferred consideration 32
Total disposal consideration 212
Carrying amount of net assets sold (see below) (90)
Gain on sale before tax and reclassification of foreign currency translation 122
reserve
Reclassification of foreign currency translation reserve 9
Gain on sale before tax 131
Attributable to:
Equity shareholders 68
Non-controlling interest 63
Net cash inflow arising on disposal:
Cash consideration received 180
Less: cash and cash equivalents disposed -
180
Of the total consideration receivable, £32m is deferred and will be received
over the 18 months following disposal. The gain on disposal has been included
in the profit for the period from continuing operations as a component of
Other income, and recognised as a non-recurring item.
The Group's share of the net assets of AEC as at the date of disposal was as
follows:
£m
Intangible assets including goodwill 16
Property, plant and equipment 8
Equity accounted investments 66
Net assets disposed 90
On 1 April 2021 BAE Systems agreed the sale of BAE Systems Rokar International
Limited (Rokar) for $31m (£22m) net of cash held by Rokar. This resulted in
consideration received of $47m (£34m), a disposal of net assets of $12m
(£8m), including $16m (£12m) of cash, and a gain before tax on disposal of
$35m (£26m) which has been included in the profit for the period from
continuing operations as a component of Other income, and recognised as a
non-recurring item. Rokar was within the Electronic Systems segment.
There were no assets held for sale as at 30 June 2021.
13. Contingent liabilities
The Group has entered into a number of guarantee and performance bond
arrangements in the normal course of business. From time to time various Group
undertakings are parties to legal actions, investigations and claims which
arise in the normal course of business. Provision is made for any amounts that
the directors consider may become payable. The Group takes legal advice as to
the likelihood of success of claims and actions and no provision is made where
the directors consider, based on that advice, that the action is unlikely to
succeed, or that the Group cannot make a sufficiently reliable estimate of the
potential obligation.
14. Events after the reporting period
On 9 July 2022 the Group entered into an agreement for the sale of BAE
Systems' financial crime detection business from Cyber & Intelligence.
This sale is subject to regulatory and government approvals, and is expected
to complete in the next few months. Therefore, as at half year the assets and
liabilities of this disposal group have been recognised as held for sale.
15. Shareholder information
The Annual General Meeting of BAE Systems plc will be held on 4 May 2023.
Registered office
BAE Systems plc
6 Carlton Gardens
London
SW1Y 5AD
United Kingdom
Registered in England and Wales, No 01470151
Cautionary statement:
All statements other than statements of historical fact included in this
document, including, without limitation, those regarding the financial
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