TIDMBA.
RNS Number : 3476Y
BAE SYSTEMS PLC
21 February 2013
BAE Systems plc
PRELIMINARY ANNOUNCEMENT 2012
RESULTS IN BRIEF
2012 2011
------------------------------------------------ ---------- -----------
Results from continuing operations
------------------------------------------------ ---------- -----------
Sales(1) GBP17,834m GBP19,154m
------------------------------------------------ ---------- -----------
Underlying EBITA(2) GBP1,895m GBP2,025m
------------------------------------------------ ---------- -----------
Operating profit GBP1,640m GBP1,580m
------------------------------------------------ ---------- -----------
Underlying earnings(3) per share:
------------------------------------------------ ---------- -----------
* including R&D tax benefit n/a 45.6p
------------------------------------------------ ---------- -----------
* excluding R&D tax benefit 38.9p 39.7p
------------------------------------------------ ---------- -----------
Basic earnings per share(4) 32.8p 37.0p
------------------------------------------------ ---------- -----------
Order backlog(1,5) GBP42.4bn GBP39.1bn
Other results including discontinued operations
------------------------------------------------ ---------- -----------
Dividend per share 19.5p 18.8p
------------------------------------------------ ---------- -----------
Operating business cash flow(6) GBP2,692m GBP634m
------------------------------------------------ ---------- -----------
Net cash/(debt) (as defined by the Group)(7) GBP387m GBP(1,439)m
------------------------------------------------ ---------- -----------
FINANCIAL KEY POINTS
- Sales(1) reduced by 7%
- Underlying EBITA(2) reduced by 6% to GBP1,895m. Deferred
recognition of sales and profit relating to the formalisation of
price escalation on the Salam Typhoon programme
- Underlying earnings(3) per share down by 2% (excluding the
benefit in 2011 of the UK tax settlement)
- Order backlog(1,5) increased by 8% to GBP42.4bn
- Non-US and UK order intake(1) increased to GBP11.2bn from GBP4.8bn in 2011
- Total dividend increased by 4% to 19.5p
- Operating business cash flow(6) increased to GBP2.7bn
- Net cash(7) balance of GBP387m
- Three-year share repurchase programme of up to GBP1bn initiated
- Longevity risk on GBP2.7bn of pension scheme liabilities transferred to the insurance market
OUTLOOK
This outlook statement assumes US budgets are subject to
Continuing Resolution for the first quarter of 2013 only and does
not reflect the impact that might result from a US
sequestration.
Subject to near-term uncertainties relating to US defence
budgets, modest growth in underlying earnings(3) per share is
anticipated for 2013. This excludes any benefit from the share
repurchase programme in 2013. In addition, and assuming a
satisfactory conclusion to Salam pricing negotiations this year,
there would be a further increase of around 3 pence in underlying
earnings(3) per share.
- Electronic Systems sales(1) are expected to be at a similar
level to those in 2012 with margins expected to be slightly lower
within a range of 12% to 14%.
- Cyber & Intelligence sales(1) are expected to be
marginally lower than those in 2012 with margins expected to be
within an 8% to 9% range.
- In Platforms & Services (US), Land & Armaments
sales(1) are expected to be approximately 10% below the 2012 level
with margins around 8%. Support Solutions sales(1) are expected to
be marginally higher than in 2012, with slightly reduced
margins.
- Platforms & Services (UK) sales(1) in 2013 are expected to
increase by around 25%, assuming a price escalation settlement and
resumption of aircraft deliveries on the Salam Typhoon contract.
Margins are expected to be similar to those in 2012.
- Platforms & Services (International) sales(1) are expected
to be marginally higher than in 2012. Margins are expected to
benefit from the anticipated resolution of Salam Typhoon price
escalation, and are expected to be at the top end of a 10% to 12%
range.
- HQ costs are expected to be more than 10% lower than in 2012
and Group earnings(3) are expected to reflect marginally lower
underlying finance costs. An effective tax rate within a 23% to 25%
range is expected.
Notwithstanding cash inflows from an anticipated Salam price
escalation settlement, significant cash utilisation is expected in
2013. This includes an expected high level of utilisation against
the advances, received in 2012, on the Saudi trainer aircraft and
Omani Typhoon and Hawk contracts and advances consumed on the
European Typhoon production contracts.
1 Including share of equity accounted investments.
2 Earnings before amortisation and impairment of intangible
assets, finance costs and taxation expense (EBITA) excluding
non-recurring items (see below).
3 Earnings excluding amortisation and impairment of intangible
assets, non-cash finance movements on pensions and financial
derivatives, and non-recurring items (see note 4).
4 Basic earnings per share in accordance with International
Accounting Standard 33, Earnings per Share.
5 Order backlog comprises funded and unfunded unexecuted
customer orders, and is stated after the elimination of intra-group
orders.
6 Net cash inflow from operating activities after capital
expenditure (net) and financial investment, dividends from equity
accounted investments, and assets contributed to Trust.
7 See definition below.
PRELIMINARY RESULTS STATEMENT
BAE Systems has continued to deliver on a clear strategy during
2012. The Group's geographic breadth of business has provided, and
is expected to continue to provide, resilience at a time when some
of its markets are constrained by economic pressures. Following a
period of growth, defence budgets in the US have flattened and are
expected to remain constrained in response to reducing overseas
operations and measures to address federal deficits. In the UK, the
defence market has stabilised following changes to programme
priorities outlined in 2010 through the UK government's Strategic
Defence and Security Review.
Growth opportunities in some segments of the US and UK markets
are identified, but the overall outlook in both countries is
expected to continue to be constrained.
In wider international markets, the Group is seeing good growth
in order intake leading to anticipated growth in international
sales. In 2012, order intake outside of the US and UK was
GBP11.2bn, compared with GBP4.8bn in 2011.
BAE Systems has a clear strategy, focused on enhancing its
position as a premier global defence, aerospace and security
company. Consistent with that strategy, discussions between BAE
Systems and EADS were held between June and October of 2012. The
discussions involved extensive engagement with many of the Group's
government stakeholders, including in the UK, US and Saudi Arabia,
and we were grateful for the positive support received. The merger
would have been an exciting development, but no agreement
acceptable to all parties could be reached.
Focus on the underlying business performance was sustained as a
priority while the merger discussions were underway. The Group's
continued strategic aim is to drive shareholder value through a
combination of meeting our customers' requirements, further
improvements in financial performance and enhanced competitive
positions across the business. The focus of the Group's Strategic
Actions in pursuit of these goals includes: growth in its cyber,
intelligence and security businesses; addressing growth
opportunities in electronic systems; driving further value from the
Group's broad base of platforms and services positions; and
increased business in international markets outside of the UK and
US.
The evolution of BAE Systems has seen the Group's business
develop from an equipment supply-centred model to one that now
embraces a services culture. In 2012, 50% of the Group's sales were
generated in services across a wide range of activities and
geographies.
Services activities include in-service support in the UK for the
Royal Air Force's trainer aircraft and fast jet fleets, and the
Royal Navy's surface fleet. In Australia and Saudi Arabia, the
Group provides a broadly-based range of support services to the
armed forces.
BAE Systems provides extensive support to US armed forces
through provision of land vehicle reset and upgrade programmes,
rotary wing and other aircraft support, and naval ship repair
services. The Group also manages complex facilities including
ammunition production in the US and the UK.
BAE Systems' services activities also include the provision of
extensive cyber and intelligence capabilities. The Group's strategy
includes growing its positions in the cyber and intelligence
services markets for governments, and pursuing organic growth
opportunities in commercial cyber and security applications and
systems.
Affordability is a key consideration for all the Group's
customers and BAE Systems has been successful in reducing costs
over a sustained period. Whilst necessary to address lower demand
in some business areas, cost reduction has also been targeted to
achieve competitive advantage. A regrettable but unavoidable
element of these cost reduction measures is the impact on
employment. Excluding M&A activity, net employee headcount
(including contractors) reduced by approximately 3,600 during the
year, bringing the total net reduction across the past four years
to approximately 26,000. In addition, site rationalisation has
continued. These efficiency improvements lead to benefits for
customers as well as underpinning the Group's value proposition for
shareholders.
US
BAE Systems' business in the US contributed approximately 40% of
Group sales in 2012. The US business has felt the dual pressure of
reduced activity in support of deployed operations in Iraq and
Afghanistan, and measures to reduce US federal budget deficits. In
particular, the US land vehicles business has, as forecast, seen
significant year-on-year reductions from the peak of activity in
2008.
The US elections have introduced some additional defence
procurement uncertainty with the administration entering a
six-month period of Continuing Resolution from the end of September
2012.
Overhanging the US defence sector into 2013 is the potential
impact of a sequestration or other budget reductions that could
result in indiscriminate funding cuts. The Group bases its plans on
conservative assumptions and continues to address its cost base
accordingly.
UK
Defence budgets in the UK are expected to remain flat, but the
recent stabilising of equipment and services requirements and the
budget outlook has established a more predictable planning
environment.
The Group's UK maritime business is experiencing a high level of
activity. Growth is anticipated in the submarines business on the
back of the multi-year Astute Class submarine programme and the
build-up in engineering workload for the Successor programme. BAE
Systems received further Successor funding during the year, with
approximately 1,000 people now working on the programme.
Also in the UK maritime business, the last ship of the six-ship
Type 45 destroyer programme completed sea trials. Good progress
continues to be made on the Queen Elizabeth Class Carrier programme
with delivery of major blocks underway for the assembly of the
first of these two ships. Work continues on the design of the Type
26 ships to replace the UK's Type 23 frigates from early in the
next decade. Type 26 production is expected to utilise a lower
level of UK ship build capacity following the currently high levels
on the Carrier programme. Discussions continue with the UK
government to determine how best to sustain the capability to
deliver complex warships in the UK in the future.
In the military air sector, European Tranche 2 Typhoon
deliveries have continued and international prospects for Typhoon
remain good with the potential to extend production into the next
decade. The Group continues to deliver assemblies for the US-led
F-35 Lightning II programme under Low-Rate Initial Production
contracts.
International
In addition to its US and UK operations, BAE Systems continues
to build on its positions in international markets. As well as
established operations in Saudi Arabia, Australia and more recently
India, the Group is pursuing multiple new business opportunities
worldwide.
Defence remains a high priority in the Kingdom of Saudi Arabia.
BAE Systems has a large involvement in the support of established
Royal Saudi Air Force (RSAF) and Royal Saudi Navy programmes in the
Kingdom.
Deliveries of RSAF Typhoon aircraft are contracted to recommence
in 2013, following a contract amendment to enable UK final assembly
of the balance of 48 aircraft under the original contract for
72.
Discussions to formalise Typhoon price escalation under the
Salam programme remain ongoing.
Discussions have commenced on the next phase of support,
following on from the three-year agreement that formed part of the
arrangements for initial entry into service of the Typhoon
aircraft.
Under the Saudi British Defence Co-operation Programme (SBDCP),
orders totalling GBP3.4bn were awarded for support through to 2016,
including the provision of manpower, logistics and training to the
RSAF. In addition, a GBP1.6bn contract was awarded in May to
support the RSAF's future aircrew training requirements involving
the supply of, and initial support for, Hawk Advanced Jet Trainer
and Pilatus training aircraft.
BAE Systems is the leading provider of equipment and support to
the Australian armed forces. The Group's largest programme in
Australia is the Canberra Class programme to build two 27,000 tonne
Landing Helicopter Dock vessels for the Royal Australian Navy.
BAE Systems continues to develop its business in India. The
Indian government has recently confirmed its intention to buy the
M777 artillery system and negotiations for a third batch of 20
locally assembled Hawk aircraft are expected to commence in
2013.
In Oman, a GBP2.5bn contract for 12 Typhoon and eight Hawk
aircraft and associated training and support has been awarded, and
we are progressing opportunities for Typhoon in Malaysia and the
United Arab Emirates.
In June, the business was awarded a $750m (GBP462m) CV90 combat
vehicle contract in Norway.
Balance sheet and capital allocation
The Group recognises the importance to investors of a clear
capital allocation policy, consistent with sustaining a strong
investment grade credit rating, as part of its value
proposition.
In addition to meeting its pension funding obligations, the
Group expects to continue organic investment in its businesses to
sustain and grow, plans to continue to pay dividends in line with
its policy of a long-term sustainable cover of around two times
underlying earnings(1) and to make accelerated returns of capital
to shareholders when the balance sheet allows. Consistent with this
approach, in February 2013, the Group initiated a three-year share
repurchase programme of up to GBP1bn. Full implementation of this
programme is subject to satisfactory resolution of Salam Typhoon
price escalation negotiations. Discussions with the Group's UK
pension scheme trustees have commenced to address any implications
for deficit funding plans. Investment in value enhancing
acquisitions will continue to be considered where market conditions
are right, where they deliver on the Group's strategy and where
they offer greater value than repurchasing the Group's own
shares.
M&A activity
The Group's business portfolio is reviewed regularly to
determine whether greater value can be created from the sale of a
business rather than its retention, and three small business
disposals were made during the year for a combined consideration of
approximately GBP111m.
In March, the Group completed the sale of BAE Systems Safety
Products Inc. and Schroth Safety Products GmbH (Safety Products).
In July, the Safariland, LLC (Safariland) business and the assets
comprising BAE Systems Tensylon High Performance Materials Inc.
(Tensylon) were sold.
BAE Systems continues to seek bolt-on acquisitions that enhance
routes to market or which provide rapid access to relevant
technologies and capabilities.
In November, the Group agreed the acquisition of Marine
Hydraulics International, Inc., a US marine repair, overhaul and
conversion company, for cash consideration of approximately $69m
(GBP42m). The acquisition is expected to complete in the first
quarter of 2013.
Pension funding
Triennial funding valuations of the Group's two largest UK
pension schemes, the BAE Systems Pension Scheme and the BAE Systems
2000 Pension Plan, were completed as at 31 March 2011. In 2012,
agreement on revised deficit funding plans was reached with the
trustees of those schemes and the next valuation will commence in
April 2014.
Directors and management
In May, Michael Hartnall, a non-executive director, stood down
from the Board having served nearly nine years in that
capacity.
As previously announced, Sir Peter Mason stepped down as the
Board's Senior Independent Director in January 2013. Nick Rose, a
non-executive director, succeeds Sir Peter as the Board's Senior
Independent Director. Sir Peter will step down from the Board at
the Annual General Meeting in May 2013.
In June, Tom Arseneault was appointed Executive Vice President
of the Product Sector businesses headquartered in the US and Chief
Technology Officer for BAE Systems, Inc. Also in June, Lynn Minella
was appointed Group Human Resources Director following the
retirement of Alastair Imrie. On their appointment, both Tom and
Lynn joined the Group's Executive Committee.
With effect from 30 March 2013, Larry Prior, Executive Vice
President of the Service Sector businesses headquartered in the US
and Chief Operating Officer for BAE Systems, Inc., and member of
the Group's Executive Committee, will leave the Group to pursue
other opportunities.
In February 2013, David Herr was appointed Executive Vice
President of the Service Sector businesses and joined the Group's
Executive Committee.
Dividend
The Board has recommended a final dividend of 11.7p per share
making a total of 19.5p per share for the year, an increase of 4%
over 2011. At this level, the annual dividend is covered 2.0 times
by underlying earnings(1) (2011 2.1 times excluding the UK tax
agreement benefit).
Income statement - continuing operations
2012 2011
GBPm GBPm
----------------------------- ------ ------
Sales(1) 17,834 19,154
----------------------------- ------ ------
Underlying EBITA(2) 1,895 2,025
----------------------------- ------ ------
Return on sales 10.6% 10.6%
----------------------------- ------ ------
Profit/(loss) on disposal
of businesses 103 (29)
Regulatory penalties - (49)
----------------------------- ------ ------
EBITA 1,998 1,947
Amortisation of intangible
assets (226) (239)
Impairment of intangible
assets (86) (109)
Finance costs(1) (275) (106)
Taxation expense(1) (337) (233)
----------------------------- ------ ------
Profit for the year 1,074 1,260
----------------------------- ------ ------
Exchange rates - average
----------------------------- ------ ------
GBP/$ 1.585 1.604
----------------------------- ------ ------
GBP/EUR 1.233 1.153
----------------------------- ------ ------
GBP/A$ 1.531 1.553
----------------------------- ------ ------
Segmental analysis
Sales(1) Underlying EBITA(2)
-------------- ---------------------
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
--------------------- ------ ------ ---------- ---------
Electronic Systems 2,507 2,645 356 386
Cyber & Intelligence 1,402 1,399 124 136
Platforms & Services
(US) 4,539 5,305 394 478
Platforms & Services
(UK) 5,646 6,258 689 658
Platforms & Services
(International) 4,071 3,794 417 449
HQ 267 233 (85) (82)
Intra-group (598) (480) - -
17,834 19,154 1,895 2,025
--------------------- ------ ------ ---------- ---------
The results of the Regional Aircraft line of business are shown
within discontinued operations.
Sales(1) reduced by 7% reflecting lower volumes in the Land
& Armaments business, and there being no contracted Typhoon
aircraft deliveries in the year under the Salam Typhoon
programme.
Underlying EBITA(2) Management uses an underlying profit measure
to monitor the year-on-year profitability of the Group defined as
earnings before amortisation and impairment of intangible assets,
finance costs and taxation expense (EBITA) excluding non-recurring
items.
Underlying EBITA(2) was GBP1,895m (2011 GBP2,025m) giving a
return on sales of 10.6% (2011 10.6%).
Non-recurring items are defined as items that are relevant to an
understanding of the Group's performance with reference to their
materiality and nature. Profit on disposal of businesses of GBP103m
in 2012 includes the disposals of Safety Products and Safariland,
and assets comprising the Tensylon business, which were part of the
Land & Armaments business. The loss of GBP29m in 2011 arose on
the disposals of the Advanced Ceramics and Swiss-Photonics
businesses.
Amortisation of intangible assets is GBP13m lower at GBP226m
mainly reflecting the completion of deliveries under the Family of
Medium Tactical Vehicles (FMTV) contract in 2011.
Impairment of intangible assets, including goodwill, of GBP86m
mainly relates to the Safariland and Tensylon businesses sold in
July 2012, and the Commercial Armored Vehicles business expected to
be sold in the first quarter of 2013. In 2011, charges included
those taken against the Safety Products (GBP66m) and Naval Ships
(GBP34m) businesses.
Finance costs(1) were GBP275m (2011 GBP106m). The underlying
interest charge, which excludes pension accounting,
marked-to-market revaluation of financial instruments and foreign
currency movements, was GBP204m. In the prior year, the underlying
interest charge of GBP199m included GBP28m relating to the early
redemption of debt in connection with the disposal of the Regional
Aircraft Asset Management business. Costs in 2012 include interest
on the GBP400m debt refinancing completed in June and a higher
level of net present value charges on long-term liabilities.
Taxation expense(1) reflects an effective tax rate of 25%. In
2011, excluding the benefit of an agreement with the UK tax
authorities addressing a number of items, including research and
development tax credits, the effective tax rate was 26%. The
calculation of the effective tax rate is shown below:
Calculation of the effective tax rate
2012 2011
GBPm GBPm
------------------------------- ----- -----
Profit before taxation 1,411 1,493
(Deduct)/add back:
(Profit)/loss on disposal
of businesses (103) 29
Regulatory penalties - 49
Goodwill impairment 57 94
------------------------------- ----- -----
1,365 1,665
------------------------------- ----- -----
Taxation expense(1) (excluding
2011 UK tax agreement) 337 430
UK tax agreement - (197)
------------------------------- ----- -----
Taxation expense(1) 337 233
------------------------------- ----- -----
Effective tax rate 25% 14%
------------------------------- ----- -----
Effective tax rate (excluding
2011 UK tax agreement) 25% 26%
------------------------------- ----- -----
The underlying tax rate for 2013 is expected to be between 23%
and 25%, with the final number dependent on the geographical mix of
profits.
Earnings per share - continuing operations
Underlying earnings(3) per share was 38.9p, a decrease of 2% on
2011 (excluding the UK tax agreement benefit).
Basic earnings per share, in accordance with International
Accounting Standard (IAS) 33, Earnings per Share, was 32.8p
compared with 37.0p in 2011 (including the UK tax agreement
benefit).
Cash flow
Reconciliation of cash inflow from operating activities(4) to
net cash/(debt) (as defined by the Group)
2012 2011
GBPm GBPm
---------------------------------- ------- -------
Cash inflow from operating
activities(4) 2,916 951
Capital expenditure (net)
and financial investment (293) (268)
Dividends received from
equity accounted investments 94 88
Assets contributed to Trust (25) (137)
---------------------------------- ------- -------
Operating business cash
flow 2,692 634
Interest (147) (180)
Income from financial assets
at fair value through profit
or loss - 4
Taxation (115) (257)
---------------------------------- ------- -------
Free cash flow 2,430 201
Acquisitions and disposals 96 (256)
Purchase of equity shares
(net) (16) (509)
Equity dividends paid (620) (606)
Dividends paid to non-controlling
interests (11) (22)
Cash outflow from matured
derivative financial instruments (119) (34)
Movement in cash collateral (2) -
Movement in cash received
on customers' account(5) 1 13
Foreign exchange translation 92 (20)
Other non-cash movements (25) 36
---------------------------------- ------- -------
Total cash inflow/(outflow) 1,826 (1,197)
Opening net debt (as defined
by the Group) (1,439) (242)
---------------------------------- ------- -------
Closing net cash/(debt)
(as defined by the Group) 387 (1,439)
---------------------------------- ------- -------
Components of net cash/(debt) (as defined by the Group)
2012 2011
GBPm GBPm
------------------------------- ------- -------
Debt-related derivative
financial assets 22 56
Cash and cash equivalents 3,355 2,141
Loans - non-current (2,967) (2,682)
Loans and overdrafts -
current (21) (518)
Less: Cash received on
customers' account(5) (2) (3)
Less: Assets held in Trust - (403)
Less: Cash held for charitable
contribution to Tanzania - (30)
------------------------------- ------- -------
Net cash/(debt) (as defined
by the Group) 387 (1,439)
------------------------------- ------- -------
Operating business cash flow
2012 2011
GBPm GBPm
------------------------------------- ----- -----
Electronic Systems 256 268
Cyber & Intelligence 113 123
Platforms & Services (US) 314 410
Platforms & Services (UK) 1,719 69
Platforms & Services (International) 506 80
HQ (214) (308)
Discontinued operations (2) (8)
------------------------------------- ----- -----
Operating business cash
flow 2,692 634
------------------------------------- ----- -----
Cash inflow from operating activities(4) was GBP2,916m (2011
GBP951m), which includes down-payments received on new contracts to
Saudi Arabia and Oman, and contributions in excess of service costs
for the UK and US pension schemes totalling GBP507m (2011
GBP375m).
The outflow from net capital expenditure and financial
investment of GBP293m (2011 GBP268m) was only marginally higher
than 2011.
Dividends received from equity accounted investments, primarily
MBDA, Advanced Electronics Company, FNSS and Eurofighter, totalled
GBP94m (2011 GBP88m). This excludes a GBP424m non-cash special
dividend received from MBDA during the year.
Assets contributed to Trust comprise GBP25m of payments made
into Trust for the benefit of the BAE Systems 2000 Pension Plan. In
2011, GBP137m was paid into Trust for the benefit of the Group's
main pension scheme.
Taxation payments were GBP142m lower at GBP115m primarily
reflecting tax refunds following the 2011 UK tax settlement and
timing differences on UK and US tax payments, and reflect the level
of pension deficit funding to the UK schemes.
Net cash inflow in respect of acquisitions and disposals of
GBP96m mainly comprises the disposals of Safety Products and
Safariland, and assets comprising the Tensylon business. The prior
year outflow of GBP256m mainly comprised the acquisition of L-1
Identity Solutions, Inc.'s Intelligence Services Group, Norkom
Group plc, ETI A/S, Fairchild Imaging, Inc. and stratsec.net Pty
Limited (GBP524m), less the net proceeds from the disposal of the
Regional Aircraft Asset Management business (GBP98m) and the
Group's residual shareholding in Saab AB (GBP152m).
The net purchase of equity shares of GBP509m in the prior year
included 184 million shares purchased under the buyback programme
at a cost of GBP500m (excluding transaction costs of GBP3m).
As a consequence of movements in US dollar and Euro exchange
rates during the year, there has been a cash outflow from matured
derivative financial instruments of GBP119m (2011 GBP34m) 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.
Net cash (as defined by the Group) is GBP387m, a net inflow from
the net debt position of GBP1,439m at the start of the year. Cash
and cash equivalents of GBP3,355m (2011 GBP2,141m) are held
primarily for pension deficit funding, payment of the 2012 final
dividend, the share repurchase programme and management of working
capital.
In June 2012, the Group issued a GBP400m, ten-year bond with an
annual coupon of 4.125% intended for general corporate purposes,
including the repayment of debt securities at maturity in 2014.
1 Including share of equity accounted investments.
2 Earnings before amortisation and impairment of intangible
assets, finance costs and taxation expense (EBITA) excluding
non-recurring items.
3 Earnings excluding amortisation and impairment of intangible
assets, non-cash finance movements on pensions and financial
derivatives, and non-recurring items (see note 4).
4 Excludes the GBP428m contribution from Trust to the UK pension
schemes and the GBP29.5m charitable contribution for the benefit of
the people of Tanzania in connection with the global settlement
with the UK's Serious Fraud Office in 2010, both made in 2012, as
the amounts had been deducted from the Group's net cash/(debt).
5 Cash received on customers' account is the unexpended cash
received from customers in advance of delivery which is subject to
advance payment guarantees unrelated to Group performance. It is
included within trade and other payables in the consolidated
balance sheet.
REPORTING SEGMENTS: ELECTRONIC SYSTEMS
Electronic Systems, with 13,000 employees(1) , comprises the US
and UK-based electronics activities, including electronic warfare
systems and electro-optical sensors, military and commercial
digital engine and flight controls, next-generation military
communications systems and data links, persistent surveillance
capabilities, and hybrid electric drive systems.
Operational key points
- Sustained a leadership position in the airborne electronic warfare market
- Strengthened position in high growth commercial aircraft electronics market
- Won key development contracts in the classified area
- Continued focus on increasing productivity and efficiency
- Business recovery complete following disruption from flood
damage at the Johnson City facility
- GBP0.2bn of research and development expenditure(5) in 2012
Financial key points
- Underlying order backlog(1,4) increased in challenging business environment
- Sales(1) reduction from operational tempo-driven activity on Thermal Weapon Sights
- Return on sales of 14.2%
- Cash flow(3) conversion of underlying EBITA(2) at 95%, before pension deficit funding
2012 2011 2010
----------------------- --------- --------- ---------
Funded order intake(1) GBP2,540m GBP2,620m GBP2,894m
----------------------- --------- --------- ---------
Order backlog(1,4) GBP3.6bn GBP3.6bn GBP3.5bn
----------------------- --------- --------- ---------
Sales(1) GBP2,507m GBP2,645m GBP2,969m
----------------------- --------- --------- ---------
Underlying EBITA(2) GBP356m GBP386m GBP455m
----------------------- --------- --------- ---------
Return on sales 14.2% 14.6% 15.3%
----------------------- --------- --------- ---------
Cash inflow(3) GBP256m GBP268m GBP367m
----------------------- --------- --------- ---------
Financial performance
Order backlog(1,4) , excluding the impact of US dollar exchange
translation, increased despite the impact of contracting delays as
the US administration operated federal budgets under Continuing
Resolution limitations.
On a like-for-like basis, sales(1) reduced by 7% on 2011
primarily reflecting the completion of deliveries of Thermal Weapon
Sights as operational tempo-driven activity reduces. Sales in the
Commercial Aircraft electronics business increased by 11%.
Underlying EBITA(2) was GBP356m (2011 GBP386m). Return on sales
was 14.2% (2011 14.6%).
Cash flow(3) conversion of underlying EBITA(2) was 95%, before
pension deficit funding.
Operational performance
Following severe flooding in September 2011, operations formerly
conducted at the Electronic Systems facility in Johnson City, New
York, have been moved to Endicott, New York. After a year of
recovery efforts, operational capability has been restored and
programmes are back on schedule.
Electronic Combat The business maintains its leadership position
in the electronic warfare market, with continued focus on the F-35
Lightning II Systems Design and Development programme, planning for
the flight test programme starting in 2013. The business progressed
Low-Rate Initial Production (LRIP) Lot 5 and 6 deliveries during
the year, and has responded to the LRIP Lot 7 request for proposal,
which includes production aircraft for international customers.
In support of the US Navy's Next-Generation Jammer, which will
replace the ageing jammer currently on certain US Navy aircraft, a
$20m (GBP12m) modification was received to expand the scope of the
existing technology maturation contract. BAE Systems is one of
three bidders on the next phase technology development contract
valued at approximately $300m (GBP185m).
The Digital Electronic Warfare System (DEWS) continues to secure
new contract awards, including a six-year, $0.4bn (GBP0.2bn)
contract to upgrade 70 F-15 aircraft for the Royal Saudi Air Force.
Initial flight testing providing advanced radar warning and
countermeasure capabilities is scheduled to begin in March 2013.
The business continues to pursue other export opportunities for the
DEWS suite.
Also in international markets, the business received three
contracts totalling $86m (GBP53m) to provide F-16 support
equipment, test systems and spares to the governments of Oman,
Indonesia and Iraq for delivery by early 2014.
Survivability & Targeting In early 2012, the US Army awarded
the business a two-year, $38m (GBP23m) contract to develop the
Common Infrared Countermeasures capability. Using its Boldstroke(R)
system, an integrated aircraft survivability system for protecting
aircraft from infrared-guided missiles and other threats, the
business will provide increased system capability in a smaller,
more energy efficient package. Following a competitor protest, the
award was upheld by the US Government Accountability Office and
work restarted in June. Initial test systems are in progress, with
the first units scheduled for government acceptance ahead of
schedule.
The Advanced Precision Kill Weapon System programme passed tests
on several airborne platforms. With deployment in theatre and
positive performance feedback, the US Navy has authorised Full-Rate
Production of the system and awarded a base contract valued at $28m
(GBP17m) for 985 units and a Full-Rate Production option of $41m
(GBP25m) for 1,476 units.
Under a $37m (GBP23m) subcontract, BAE Systems continues to
support the engineering and manufacturing development of the Joint
and Allied Threat Awareness System, a next-generation warning
system to enhance aircraft survivability for the US Navy.
The Thermal High-Altitude Area Defence seeker programme provides
a transportable, rapidly deployable, ground-based capability to
intercept and destroy ballistic missiles inside or outside the
atmosphere during their final phase of flight. BAE Systems has
received an initial amount of $87m (GBP54m) in combined US
government and Foreign Military Sales to the United Arab Emirates
on the programme, including a base quantity of 146 seekers with an
option for up to a further 147.
Deliveries of Thermal Weapon Sights to the US Army in support of
military operations in Iraq and Afghanistan were completed.
BAE Systems has responded to a US Army request for proposal for
its Joint Effects Targeting System programme, which has been
designed to enhance dismounted, forward-deployed soldiers' ability
to accurately locate positions and target precision-guided
munitions fire support. An award decision is expected in the first
half of 2013 for a 26-month Engineering and Manufacturing
Development phase, which will be followed by a Low-Rate Initial
Production award competition.
Communications & Control The F-35 Lightning II programme
continues to be a key platform for the Group's avionics products.
Deliveries continue on plan for the active inceptor system out of
Rochester, UK, and the vehicle management system out of Endicott,
New York. The business has continued to pursue additional
opportunities expanding its content on the platform.
Leveraging commercial technology to create a low size, weight
and power design, the business launched the PHOENIX(TM) family of
networking radios to integrate easily into US Army ground combat
vehicles. In October, the business responded to the US Army's
next-generation Mid-tier Networking Vehicular Radio request for
proposal with its two-channel PHOENIX-SC radio, with an award
decision expected in 2013.
Intelligence, Surveillance & Reconnaissance (ISR) The
business continues to provide Wide Area Airborne Surveillance
capability for the US Air Force and US Army. These key programmes
are based on two wide-area, high-resolution imaging sensor systems,
the Airborne Wide Area Persistent Surveillance System, which has
been operational for over 12,000 hours in theatre, and the
Autonomous Real-time Ground Ubiquitous Surveillance - Imaging
System. These systems enable observation of very wide areas of
interest with sufficient imagery resolution to meet intelligence
and surveillance needs.
The business is providing state-of-the-art processing
capabilities to Boeing for the US Navy's P8A Poseidon programme.
The mission computer suite has robust, flexible and rugged open
architecture providing high performance in the military
environment. Over 30 initial systems have been delivered and a
contract for Full-Rate Production Lot 1 has been awarded.
As a leader in the Identification Friend or Foe market, the
business has a strong order backlog(4) driven by the Mode 5
cryptographic system upgrades, which have been incorporated into
products deployed on multiple US Department of Defense platforms.
Production has begun and is expected to continue to the end of the
decade.
Commercial Aircraft electronics The business continues to be
well positioned for growth in worldwide demand for commercial
aviation through its engine and flight controls activities.
FADEC Alliance, a new joint venture between FADEC International
(a joint venture between BAE Systems and Sagem) and GE Aviation,
began development of the Full-Authority Digital Engine Controls for
CFM International's LEAP and GE Aviation's Passport family of
engines.
Ongoing development of the primary flight control electronics
and active side sticks for Embraer's KC-390 military transport
aircraft is raising the Group's profile in the emerging Brazilian
aerospace industry. The first flight of the KC-390 is expected in
2014.
HybriDrive(R) propulsion BAE Systems has delivered 3,800 hybrid
diesel-electric propulsion systems since 2004, which are now in
service with over 60 operators.
In April 2012, European bus manufacturer, Iveco Irisbus,
announced that it had been awarded Europe's largest single order
for 132 diesel-electric hybrid buses for Dijon and Bordeaux in
France. Prior to this award, Iveco Irisbus had delivered
approximately 20 diesel-electric hybrid buses equipped with BAE
Systems' propulsion systems.
The business has progressed solutions for battery reliability
issues in the field from its first generation lithium-ion battery
packs. In addition, ownership of the current battery supplier has
changed and the business is working with the new owner to minimise
the impact on the Group and its customers.
Looking forward
Efforts to reduce the US government's budget deficit are likely
to impact all areas of government spend. A Continuing Resolution on
the 2013 fiscal budget has been passed through to March 2013 and
the risk of further reductions in US defence budgets remains,
including the impact of sequestration.
Whilst likely funding reductions and the resultant slow down or
cancellation of ongoing and new programmes could impact the
business, Electronic Systems remains well positioned with a
balanced portfolio that will enable it to respond to changing US
Department of Defense priorities whilst maintaining its emphasis on
cost reduction. The business expects to benefit from its incumbent
positions on core platforms, and from positions in areas such as
commercial aircraft electronics and international defence
programmes.
REPORTING SEGMENTS: CYBER & INTELLIGENCE
Cyber & Intelligence, with 8,200 employees(1) , comprises
the US-based Intelligence & Security business and
UK-headquartered BAE Systems Detica business, and covers the
Group's cyber, secure government, and commercial and financial
security activities.
Operational key points
- The US-based business continues to perform well on existing
programmes and secured strategic contract awards with existing
customers
- The US-based business continues to invest in differentiating
technologies, such as activity-based intelligence and
cybersecurity, including a leading edge network operations and
security centre environment, to support a pipeline of submitted
bids of $2.9bn (GBP1.8bn) at the end of 2012
- BAE Systems Detica continues to invest in products and
capability, including its Security Operations Centre
- BAE Systems Detica awarded a contract by Vodafone for
next-generation enterprise secure networks for mobile devices
Financial key points
- Funded order intake(1) and sales(1) were broadly unchanged from 2011
- Return on sales impacted by investment in the BAE Systems Detica business for future growth
- Cash flow(3) conversion of underlying EBITA(2) at 91%
2012 2011 2010
----------------------- --------- --------- ---------
Funded order intake(1) GBP1,454m GBP1,443m GBP1,300m
----------------------- --------- --------- ---------
Order backlog(1,4) GBP1.0bn GBP1.1bn GBP0.9bn
----------------------- --------- --------- ---------
Sales(1) GBP1,402m GBP1,399m GBP1,201m
----------------------- --------- --------- ---------
Underlying EBITA(2) GBP124m GBP136m GBP108m
----------------------- --------- --------- ---------
Return on sales 8.8% 9.7% 9.0%
----------------------- --------- --------- ---------
Cash inflow(3) GBP113m GBP123m GBP89m
----------------------- --------- --------- ---------
Financial performance
Funded order intake(1) and sales(1) were broadly unchanged from
2011.
Order backlog(1,4) reduced to GBP1.0bn (2011 GBP1.1bn). There is
a significant number and value of competitive bids in the
Intelligence & Security business awaiting award decisions.
Underlying EBITA(2) was GBP124m (2011 GBP136m). Return on sales
reduced to 8.8% (2011 9.7%) reflecting increased levels of
investment in the BAE Systems Detica business in support of
targeted future growth in commercial and international markets.
Operating cash inflow(3) was GBP113m (2011 GBP123m), which
represents a conversion of underlying EBITA(2) of 91%.
Operational performance
Intelligence & Security
The US-based Intelligence & Security business delivers a
broad range of services, including secure IT solutions,
cybersecurity, geospatial solutions and intelligence analysis to
enable the US military and government to recognise, manage and
defeat threats. The business is structured into four key business
areas that provide specific domain expertise, whilst working
closely together to provide enterprise-wide support to a range of
customers, and key agencies in the intelligence, defence, homeland
security and civilian markets.
Information Technology & Cybersecurity Solutions develops,
deploys and maintains mission applications focused on information
sharing, knowledge management and enhanced enterprise mission IT
solutions for the US federal, civilian and defence intelligence
communities. The business also provides analytics, cyber analysis
and real-time network forensics.
Through 2012, work continued on the Solutions for the
Information Technology Enterprise Indefinite Delivery, Indefinite
Quantity (IDIQ) contract, with the business as the prime
contractor, receiving task orders now worth a total of $344m
(GBP212m). Since the project began, approximately 700
security-cleared IT experts, deployed across 84 locations in 14
countries, have assisted the US Defense Intelligence Agency in
delivering IT services to 50,000 Department of Defense personnel by
standardising global IT operations and reducing the time taken to
deliver technician services.
Continuing work on the Next-Generation Desktop Environment
(NGDE) programme for the US Defense Intelligence Agency, the
business has virtualised hundreds of applications and deployed data
centre infrastructure to 13 sites, now supporting over 12,000
global analyst workstations. The NGDE is an enterprise networking
environment based on virtual desktop infrastructure.
The Security Operations Centre in the US protects the Group's
networks by monitoring its global intranet, with more than 100,000
network interfaces serving employees across five home markets and
offices in over 100 countries. Services include security
engineering, risk analysis, support of IT hardware and software, IT
engineering and applications, and global enterprise monitoring and
security incident response.
GEOINT-ISR (Geospatial Intelligence - Intelligence, Surveillance
and Reconnaissance) develops and supports software systems and
mission applications for geospatial tasking, including data
collection, processing, exploitation and dissemination, as well as
mission planning, Intelligence, Surveillance and Reconnaissance
(ISR), precision targeting, and command and control for the US
defence and intelligence communities.
The business was awarded a five-year, $106m (GBP65m) contract by
the National Geospatial-Intelligence Agency (NGA), under which
engineers will design, develop and implement a transformational
solution enabling the US government to evolve from its current
image library to a standardised image storage, management and
dissemination process. This is an important strategic win that will
drive future GEOINT and imagery systems development.
In December 2012, BAE Systems was awarded a multi-year, $60m
(GBP37m) contract to provide activity-based intelligence systems,
tools and support for mission priorities for the NGA. This award is
a task order under the NGA's Total Application Services for
Enterprise Requirements programme, a five-year IDIQ contract.
Global Analysis provides mission-enabling analytic solutions and
support to operations across the US homeland security, law
enforcement, defence, intelligence and counterintelligence
communities.
The business continues to provide approximately 450 security
cleared analysts working alongside forward deployed US defence
personnel as part of the Counter Improvised Explosive Device
(C-IED) programme, with a total value of funded orders of
approximately $450m (GBP277m) over the two years of the contract.
The business is now working with the customer to manage staffing
levels in line with reducing mission requirements.
The business is executing well on the Full Motion Video and
Geospatial Imagery Analysis contract awarded in 2011, with a
contract value of $402m (GBP248m) and over 400 employees being
utilised.
SpecTal provides US government customers with specialised
security and intelligence mission support, including intelligence
analysis, targeting operations support, training and IT
deployment.
With the 2011 acquisition of L-1 Identity Solutions'
Intelligence Services Group, a key contract with an intelligence
community customer was gained. The contract has since been
re-competed and SpecTal was part of the winning bid team serving as
a major subcontractor on the five-year programme.
BAE Systems Detica
BAE Systems Detica continues to build a business that provides
security and intelligence products and services to both government
and commercial customers. In July, the stratsec business in
Australia, acquired in 2011, and a new security entity in India
were integrated into BAE Systems Detica. The business is also
focused on developing opportunities in the Americas' commercial
market.
Cyber Security Demand is growing across both government and
commercial sectors, with contracts secured with a global law firm
and a US financial institution in 2012. The Security Operations
Centre became fully operational in 2012, providing services to
detect and remediate advanced cyber attacks for clients.
The business was one of four companies selected by the UK's
Government Communications Headquarters (GCHQ) to work in
partnership on a new Cyber Incident Response pilot programme, a
government quality-assured service that organisations can turn to
when they have suffered a cybersecurity incident.
Detica NetReveal(R) As a provider of risk, fraud and compliance
solutions to the global financial services industry, orders of
GBP74m were received during the year, including contracts in new
business areas of healthcare and insurance in the US.
Global Communications Solutions is a provider of specialist
communications equipment, including monitoring and lawful intercept
solutions, for use by government and commercial clients.
During 2012, a review of routes-to-market was carried out,
resulting in necessary changes which adversely impacted the 2012
financial performance of the business.
Services The business, which provides consultancy, systems
integration and managed services, was impacted by challenging
market conditions in both the UK government and commercial
sectors.
Orders in the year included a contract under a business change
programme for a complex UK cross-government programme and a managed
services contract with Vodafone for the provision of
next-generation enterprise secure networks for mobile devices. The
business was unsuccessful in its bid to provide services under the
UK government's Disclosure and Barring Service.
The business continues to develop opportunities internationally,
in both the Middle East and, with the addition of stratsec, the
Asia Pacific region.
Looking forward
Efforts to reduce the US government's budget deficit are likely
to impact all areas of government spend. A Continuing Resolution on
the 2013 fiscal budget has been passed through to March 2013 and
the risk of further reductions in US defence budgets remains,
including the impact of sequestration.
Growth opportunities remain, particularly in critical,
mission-focused areas, such as next-generation ISR, Multi-INT
fusion (the seamless synthesis of the individual intelligence
disciplines to enable more complete situational awareness), counter
intelligence and enterprise solutions for big data problems.
The US market is experiencing delays in procurement awards and
descoping of existing contracts as US government agencies look to
reduce IT budgets. Sales in 2013 are expected to be impacted by the
completion of the C-IED contract as the US withdraws from
Afghanistan. However, the business expects an enduring need to
provide data management solutions, including the rapid collection,
processing and dissemination of data to intelligence community
customers and the US military. The business is well prepared to
compete in this price-sensitive market through its customer
intimacy, innovation and continued cost management.
BAE Systems Detica expects growth in cyber and intelligence,
both in the UK and overseas government markets, with increasing
demand for products and services in commercial markets to manage
cyber threats, counter financial fraud and improve compliance,
including next-generation security for mobile devices.
REPORTING SEGMENTS: PLATFORMS & SERVICES (US)
Platforms & Services (US), with 21,300 employees(1) ,
comprises the US-headquartered Land & Armaments business, with
operations in the US, UK, Sweden and South Africa, together with
US-based services and sustainment activities, including ship repair
and munitions services.
Operational key points
- Growth in US ship repair activities
- Executing munitions infrastructure and facility operations management contracts
- Strategic international win with Korean F-16 upgrade down-select
- Continued to protect Bradley franchise with $376m (GBP231m) in related awards
- Awarded a $750m (GBP462m) contract for CV90 armoured combat vehicles to Norway
- Letter of Request received from Indian government for 145 M777 howitzers
- Continued consolidation in the Land & Armaments business
- Business disposals of Safety Products, Safariland and Tensylon completed
Financial key points
- Sales(1) reduced by 2% in Support Solutions business and by 23% in Land & Armaments business
- Return on sales increased to 8.8% in Support Solutions
business and reduced to 8.6% in Land & Armaments business
- Support business delivered an increase in order backlog(1,4)
and strong operating cash flow(3)
2012 2011 2010
----------------------- --------- --------- ---------
Funded order intake(1) GBP5,010m GBP5,077m GBP5,605m
----------------------- --------- --------- ---------
Order backlog(1,4) GBP8.4bn GBP8.7bn GBP9.1bn
----------------------- --------- --------- ---------
Sales(1) GBP4,539m GBP5,305m GBP7,671m
----------------------- --------- --------- ---------
Underlying EBITA(2) GBP394m GBP478m GBP728m
----------------------- --------- --------- ---------
Return on sales 8.7% 9.0% 9.5%
----------------------- --------- --------- ---------
Cash inflow(3) GBP314m GBP410m GBP967m
----------------------- --------- --------- ---------
Financial performance
Sales(1) were GBP4.5bn (2011 GBP5.3bn), representing a
like-for-like reduction of 13%. Sales(1) at Support Solutions were
just 2% below 2011. Like-for-like sales(1) at Land & Armaments
reduced by 20% primarily reflecting the completed Family of Medium
Tactical Vehicles programme, and lower volumes on Bradley, Caiman
and Mine Resistant Ambush Protected vehicles.
Underlying EBITA(2) was GBP394m (2011 GBP478m). Return on sales
reduced to 8.7% (2011 9.0%). Return on sales at Support Solutions
increased from 7.5% to 8.8% benefiting from certain legal
settlements. Return on sales at Land & Armaments reduced from
9.9% to 8.6% reflecting accelerated rationalisation charges in
respect of the Newcastle vehicle manufacturing site in the UK and
certain legal claims.
Operating cash inflow(3) reduced to GBP314m (2011 GBP410m)
reflecting continued investment in the UK munitions facilities in
the Land & Armaments business. Excluding pension deficit
funding, cash flow(3) conversion of underlying EBITA(2) at Support
Solutions and Land & Armaments was 100% and 83%,
respectively.
Operational performance
Support Solutions
The US-based ship repair business achieved 2012 commitments
under its Multi-Ship, Multi-Option contract vehicles with the US
Navy, receiving superior scores on award fee assessments. The
business was awarded new commercial maritime construction contracts
totalling $190m (GBP117m), including four platform supply vessels
and two barges.
In the complex infrastructure services market, the business
secured the Holston Army Ammunition Plant award of a follow-on
five-year, $145m (GBP89m) contract for facility operations. In
addition, the business completed the planned transition to begin
operating the Radford Army Ammunition Plant on 1 July 2012 under a
contract worth approximately $850m (GBP523m) over ten years. In
October 2012, the business was notified that it had not been
awarded the Lake City Army Ammunition Plant management
contract.
The business won a five-year, $44m (GBP27m) Navy Munitions
Command - Hawaii contract to handle and store munitions, which
continues more than 27 years of distinguished service recognised by
the US Navy.
The US Naval Air Warfare Center Aircraft Division awarded a
follow-on five-year, $193m (GBP119m) contract to provide Command,
Control, Communications, Computers and Intelligence (C4I),
lifecycle support, integration and test engineering, and technical
services, supporting a broad range of air, land and sea
platforms.
The business was awarded a $60m (GBP37m) task order under the US
Department of Defense's Joint Improvised Explosive Device Defeat
Organization contract to develop and implement a five-year training
programme.
Support Solutions continues to pursue international aircraft
upgrade and modification opportunities. In August, the Republic of
Korea selected BAE Systems to upgrade avionics and electronic
systems on its fleet of more than 130 F-16 aircraft. The programme
is expected to be contracted in 2013 and is forecast to be worth
over $500m (GBP308m) over ten years.
In November, the business was awarded a contract by the US Navy
for depot level maintenance and logistics support for more than 360
T-34/T-44/T-6 training aircraft. If all options are exercised, the
contract would be valued at more than $400m (GBP246m) over five
years.
BAE Systems is pursuing a potential bid as prime contractor for
the US Air Force's T-X programme to replace the T-38 jet training
system with its Hawk trainer aircraft. The programme is valued at
between $11bn (GBP7bn) and $17bn (GBP10bn). The US Air Force is
expected to announce the timing of its request for proposals in
2013.
In the Protection Systems business, contracts have been secured
totalling over $200m (GBP123m) for the supply of Enhanced Small
Arms Protective Inserts, Tactical Vests and Modular Lightweight
Load Carrying Equipment.
In November, the Group announced a definitive agreement to
acquire Marine Hydraulics International, Inc., a marine repair,
overhaul and conversion company with shipyard, pier and waterfront
facilities in Norfolk, Virginia. The proposed acquisition, which is
expected to complete during the first quarter of 2013, complements
the existing ship repair business.
Land & Armaments
During 2012, Land & Armaments completed the disposals of its
Safety Products, Safariland and Tensylon businesses. The disposal
of the Commercial Armored Vehicles business is expected to complete
in the first quarter of 2013. In September, the business announced
that production of military equipment at its Fairfield, Ohio,
facility would be moved to Sealy, Texas, in early 2013. The
Protection Systems business, formerly reported in Land &
Armaments, was transferred to Support Solutions at the start of the
year. Management of the Combat Vehicles (UK) business was
transferred to Platforms & Services (UK) from 1 October
2012.
Vehicle Systems This division comprises the franchises in
tracked and wheeled vehicles.
The business received a $306m (GBP188m) contract modification in
August to upgrade 353 Bradley fighting vehicles, extending Bradley
activity into 2014. This production contract is in addition to $70m
(GBP43m) to purchase upgrade materials for the Bradley
programme.
The business has received the Paladin Integrated Management
(PIM) Low-Rate Initial Production request for proposal scheduled
for submission in early 2013. Testing continues on the contracted
prototypes activity. An award decision is expected in 2013.
On the Ground Combat Vehicle (GCV) programme, the business
continues test work under the $450m (GBP277m) technology
development phase. Continuing development testing demonstrates that
the technology provides more power, efficiency and vehicle
performance than comparable conventional drive systems.
In January 2012, the business was awarded a GBP65m contract to
supply 48 BvS10 armoured all-terrain vehicles and associated
support to Sweden. The business was also awarded a GBP38m contract
to regenerate the British Royal Marines' fleet of BvS10 vehicles.
The last of 53 BvS10s ordered by France was delivered by year
end.
In June, the business was awarded a $750m (GBP462m) contract to
upgrade Norway's existing 103-vehicle CV90 fleet and build new
vehicle chassis to deliver 144 CV90s in five different
configurations, including a variant equipped with a sensor suite
for improved surveillance capability.
All deliveries of the Caiman Multi-Terrain Vehicle were
delivered to contract schedule, with re-fit and integration of 592
vehicles completed at the Mine Resistant Ambush Protected (MRAP)
sustainment facility in November.
In August, the business was selected as part of the industry
team led by Lockheed Martin for the engineering and manufacturing
development phase of the US government's potentially large Joint
Light Tactical Vehicle programme.
The South African business continues to execute on a GBP39m
contract for 73 RG31 Mobile Mortar Platforms for the United Arab
Emirates and a GBP43m order for 110 RG32 patrol vehicles for the
Swedish Defence Force that were secured in December 2011.
The business secured places on all the amphibious trade studies,
demonstrators and hull survivability demonstrations, allowing the
US Marine Corps customer to evaluate design concepts based on a new
design or an upgrade to current vehicles.
In November, Denmark announced that eight bids had been received
in response to its requirement for up to 450 armoured vehicles. BAE
Systems bid a version of the CV90, which Denmark already operates.
The award decision is expected in late 2013.
In Canada, following a one-year delay, a new request for
proposal was released for up to 138 Close Combat Vehicles. BAE
Systems submitted a proposal based on its CV90 armoured combat
vehicle.
The business was unsuccessful in its bid for the Tactical
Armoured Patrol Vehicle programme for the Canadian armed
forces.
Weapons Systems & Support This division comprises munitions
and artillery activities.
In naval armaments, orders for six Mk110 57mm naval guns were
received for the US Coast Guard and to equip the US Navy's Littoral
Combat Ships.
During the year, Australia announced its intention to buy 19
M777 howitzers to augment the 35 it already operates. In addition,
the Indian government has issued a Letter of Request to the US
government under the US Foreign Military Sales process for the
supply of 145 M777 howitzers for the Indian Army.
Under the 15-year Munitions Acquisition Supply Solution
contract, the UK Ministry of Defence placed an order to meet its
2015 munitions requirement reflecting lower demand and quantities
deferred from previous years. This anticipated lower volume results
from armed force cuts and the draw-down of Afghanistan operations.
Efficiencies achieved through a GBP123m transformation of UK
munitions manufacturing facilities and support from the UK Ministry
of Defence position the business to offset this reduction with
exports.
Joint Ventures FNSS BAE Systems' Turkish joint venture,
continues to produce and upgrade tracked and wheeled military
vehicles for international customers. Design work and successful
mine testing were completed on a $559m (GBP344m) programme to
produce 259 8x8 wheeled armoured vehicles in 12 different variants
for the Malaysian Army. Production has commenced and the first
Infantry Fighting Vehicles are scheduled to be delivered in
2013.
Looking forward
Efforts to reduce the US government's budget deficit are likely
to impact all areas of government spend. A Continuing Resolution on
the 2013 fiscal budget has been passed through to March 2013 and
the risk of further reductions in US defence budgets remains,
including the impact of sequestration.
In February 2013, the Group was notified that the US Navy was
considering the potential to cancel, defer or de-scope 13 ship
availability contracts, resulting in the decision to issue
conditional Worker Adjustment and Retraining Notification (WARN)
Act notices to nearly 3,600 employees in the ship repair
business.
Whilst downward pressure will be seen across the services market
as a whole, potential cancellations and delays in new programmes
may present opportunities to sustain and modernise existing
platforms.
In the near term, Land & Armaments continues to operate in a
challenging market environment. To offset these pressures and
remain viable in the future, the business is investing to protect
current programme positions like Bradley modernisation and UK
munitions, establish new US domestic programmes such as PIM and
GCV, and to win export programmes. The business continues to drive
rationalisation efforts, efficiencies and cost reduction in order
to remain competitive.
REPORTING SEGMENTS: PLATFORMS & SERVICES (UK)
Platforms & Services (UK), with 27,900 employees(1) ,
comprises the Group's UK-based air, maritime and combat vehicle
activities, and certain shared services activities.
Operational key points
- 46 Typhoon Tranche 2 aircraft delivered to the partner nations
- GBP2.5bn Typhoon and Hawk contract for Oman secured
- GBP446m contract awarded for European support on Typhoon
- First F-35 Lightning II aircraft accepted by the UK Ministry of Defence (MoD)
- Fifth Type 45 destroyer accepted off-contract and support
provided for all Royal Navy Type 45 deployments
- Settlement reached with the Government of the Republic of
Trinidad and Tobago in respect of the cancelled Offshore Patrol
Vessels (OPV) programme
- Two OPVs delivered to the Brazilian Navy
- GBP0.8bn of customer funding received for ongoing design and
development of the Successor submarine, and continuing production
of the fourth Astute Class submarine
- GBP0.7bn of research and development expenditure(5) in 2012
Financial key points
- Order backlog(1) increased by GBP2.5bn on significant awards
for Oman Typhoon and Hawk and Saudi training aircraft
- 10% decrease in sales(1) pending recommencement of Salam Typhoon deliveries in 2013
- Return on sales improved to 12.2%
- Strong cash flow(3) performance on significant contract advances
2012 2011 2010
----------------------- --------- --------- ---------
Funded order intake(1) GBP8,077m GBP4,355m GBP3,968m
----------------------- --------- --------- ---------
Order backlog(1) GBP21.2bn GBP18.7bn GBP21.0bn
----------------------- --------- --------- ---------
Sales(1) GBP5,646m GBP6,258m GBP6,529m
----------------------- --------- --------- ---------
Underlying EBITA(2) GBP689m GBP658m GBP522m
----------------------- --------- --------- ---------
Return on sales 12.2% 10.5% 8.0%
----------------------- --------- --------- ---------
Cash inflow(3) GBP1,719m GBP69m GBP191m
----------------------- --------- --------- ---------
Financial performance
Funded order intake(1) in the year increased to GBP8.1bn
following the award of significant contracts for the supply of 12
Typhoon and eight Hawk aircraft to Oman (GBP2.5bn), and for
training aircraft for the Royal Saudi Air Force (GBP1.6bn).
Sales(1) in 2012 were GBP5.6bn, 10% lower than 2011, reflecting
no contractual aircraft deliveries on the Salam Typhoon programme
in 2012 and the completion of South African Gripen aircraft
deliveries in 2011.
Underlying EBITA(2) was GBP689m (2011 GBP658m). Return on sales
increased to 12.2% benefiting from strong programme execution,
particularly on the European Typhoon and Type 45 programmes.
There was an operating cash inflow(3) of GBP1,719m (2011 GBP69m)
reflecting advances received on the Omani and Saudi contract
awards. These were partially offset by the utilisation of advances
on the European Typhoon programme and costs against the provision
on the Omani OPV programme.
Operational performance
Military Air & Information
Deliveries of Typhoon Tranche 2 aircraft to the four European
partner nations totalled 46 in the year. At the end of 2012,
cumulative aircraft deliveries to the four nations were 169 of the
contracted 236. The first ten Tranche 3 front fuselage
sub-assemblies were manufactured during the year. Manufacture of
sub-assemblies continues in advance of recommencement of deliveries
of Typhoon aircraft to Saudi Arabia in 2013.
In December 2012, a GBP2.5bn contract was awarded for the supply
of 12 Typhoon and eight Hawk aircraft, associated training, and
support to the Royal Air Force of Oman.
The business continues to support its UK and European customers'
Typhoon and Tornado aircraft, and their operational commitments
through availability-based service contracts and support
operations. Orders of GBP668m were received in the year, including
a contract worth GBP446m for Typhoon support operations across
Germany, Italy, Spain and the UK. Support volumes on Tornado are
expected to decline as the number of aircraft and flying hours
reduce in advance of the out-of-service date of April 2019.
Delivery of the first F-35 Lightning II aircraft was accepted by
the UK MoD. The business has delivered a further 42 production
aircraft fuselage assemblies to Lockheed Martin. Interim funding of
GBP234m for the fifth and sixth Low-Rate Initial Production
contracts was secured in the year and negotiations continue in
respect of final funding.
Support continues to be provided to operators of Hawk trainer
aircraft around the world. In partnership with Hindustan
Aeronautics Limited, production of 66 Batch 1 Hawk aircraft has
been completed in India. Deliveries of materials and equipment in
support of licence production of the 57 Batch 2 aircraft continue
and aircraft assembly in India is ongoing. The business has
provided an initial response to a request for proposal for an
additional 20 aircraft to India.
Following the 2011 government-to-government Memorandum of
Understanding, BAE Systems and Dassault Aviation have jointly
secured an order from the UK and French governments for a Future
Combat Air System demonstration programme preparation phase to plan
how to mature and demonstrate critical technology and operational
aspects for an Unmanned Combat Air System.
In the defence information domain, the Falcon secure deployable
communication system is now in service with the British Army and
RAF.
Under a continuing focus on cost reduction and efficiency, there
has been a net headcount(1) reduction of approximately 1,400 in the
year.
Maritime
Cumulative savings of GBP342m have been reported to the MoD
against commitments made under the 15-year Terms of Business
Agreement (ToBA), significantly ahead of target. In line with the
ToBA, the Group is progressing discussions with the MoD regarding
future shipbuilding strategy after completion of block build for
the Royal Navy's new aircraft carriers, and as the business
transitions to the design and manufacture phase of the Type 26
Global Combat Ship.
The largest hull section of the first of the Royal Navy's new
aircraft carriers, the Queen Elizabeth, has been delivered to
Rosyth for assembly with the other completed hull sections. Block
manufacture for the second ship, Prince of Wales, is well underway.
BAE Systems and its Aircraft Carrier Alliance partners are working
to finalise the detailed design changes required for operation of
the short take-off and vertical landing variant of F-35 Lightning
II on the carriers.
Defender, the fifth Type 45 destroyer, was accepted by the Royal
Navy in July. The final ship, Duncan, has undertaken her sea trials
and is on schedule for delivery in 2013. The Type 45 support
contract met all ship deployment dates during the year.
Settlement with the Government of the Republic of Trinidad and
Tobago, in respect of the cancelled OPV programme, was reached in
November at an amount consistent with provisions held. In January
2013, GBP101m of the GBP131m cash settlement was paid, with the
remainder due in May 2013. Following the agreement in December 2011
for the sale of the OPVs to the Brazilian Navy, the first two
vessels were delivered in the year, with the third ship due for
delivery in 2013.
Following an incident at sea during gunnery trials on the first
Khareef Class corvette for Oman, detailed engineering, schedule and
contract reviews have resulted in revised delivery dates for the
ships. This has resulted in an increase in costs to complete the
contract. The ships are expected to be delivered in 2013 and
2014.
The Type 26 Global Combat Ship assessment phase contract
continues and is intended to be completed by the end of 2014. The
Type 26 is planned to replace the Royal Navy's Type 23
frigates.
The warship support modernisation initiative contract, for
delivery of services at Portsmouth Naval Base, continues to exceed
contract performance. A new maritime support delivery framework
will replace the existing contract in 2013.
The Advanced Radar Target Indication Situational Awareness
Navigation (ARTISAN) 3-D radar successfully passed its factory
acceptance test and the first of class has been fitted to HMS Iron
Duke, a Type 23 frigate. The programme continues on track towards
full production.
The Maritime Composite Training System, a shore-based warfare
operator training solution, was declared ready for training by the
Royal Navy in August having completed a year of initial training.
Over 3,000 Royal Navy personnel have now been trained through the
facility.
The Sting Ray lightweight torpedo delivery contract for the
Norwegian government was completed in December.
Ambush, the second of class Astute submarine for the Royal Navy,
departed for sea trials in the second half of the year. The
operational handovers of both HMS Astute, the first of class, and
Ambush are planned for 2013. Pricing for the fourth boat has been
agreed with the customer and long lead procurement has commenced on
the sixth and seventh boats.
BAE Systems secured a further GBP383m of funding from the UK MoD
for the design and development phase of the Successor submarine
programme, to replace the Vanguard Class fleet, and now has
approximately 1,000 people engaged on the programme.
Combat Vehicles (UK)
The Terrier combat engineer vehicle contract concluded its
reliability growth confirmation trials, which identified a number
of required engineering changes. This has resulted in an increase
in costs to complete the contract. Final trials are complete and
deliveries of the 60 vehicles will commence in 2013.
Following delivery of the Terrier vehicles, the Newcastle
facility will close, and support to Terrier and existing vehicles
used by the British Army customer will be provided from the
remaining facility at Telford and satellite offices.
Looking forward
Platforms & Services (UK) has a strong order backlog of
long-term committed programmes and an enduring support
business.
In Military Air & Information, sales are underpinned by
military aircraft production on Typhoon, Hawk and F-35 Lightning
II, and in-service support for existing and legacy combat and
trainer aircraft. There are significant opportunities to secure
future Typhoon export contracts to Malaysia, the United Arab
Emirates and Saudi Arabia.
In Maritime, sales are underpinned by the Queen Elizabeth Class
carrier and Astute Class submarine manufacturing programmes, the
15-year ToBA, the maritime support delivery framework, and the
design of the Successor submarine and Type 26. The through-life
support of these platforms and Type 45, together with their
associated command and combat systems, provides sustainable
business in technical services and mid-life upgrades.
In Combat Vehicles (UK), sales beyond the Terrier programme
depend upon through-life support of legacy platforms.
REPORTING SEGMENTS: PLATFORMS & SERVICES (INTERNATIONAL)
Platforms & Services (International), with 15,500
employees(1) , comprises the Group's businesses in Saudi Arabia,
Australia, India and Oman, together with its 37.5% interest in the
pan-European MBDA joint venture.
Operational key points
- Salam price escalation negotiations ongoing
- GBP5.0bn of orders received under the Saudi British Defence
Co-operation Programme (SBDCP) for training aircraft and support to
the end of 2016
- First Landing Helicopter Dock hull arrived in Australia for
completion and second hull launched in Spain
- MBDA export order for MICA air-to-air missiles to India
Financial key points
- Order backlog(1) increased reflecting multi-year support and training awards under the SBDCP
- Like-for-like increase in sales(1) of 9% on increased support
activity on the Salam Typhoon programme and weapons deliveries
under the Tornado Sustainment Programme (TSP)
- Strong operating cash flow(3) reflecting acceleration of advances on TSP
2012 2011 2010
----------------------- --------- --------- ---------
Funded order intake(1) GBP5,266m GBP3,319m GBP2,694m
----------------------- --------- --------- ---------
Order backlog(1) GBP9.3bn GBP8.3bn GBP9.1bn
----------------------- --------- --------- ---------
Sales(1) GBP4,071m GBP3,794m GBP4,325m
----------------------- --------- --------- ---------
Underlying EBITA(2) GBP417m GBP449m GBP449m
----------------------- --------- --------- ---------
Return on sales 10.2% 11.8% 10.4%
----------------------- --------- --------- ---------
Cash inflow(3) GBP506m GBP80m GBP190m
----------------------- --------- --------- ---------
Financial performance
Order intake(1) increased to GBP5.3bn (2011 GBP3.3bn) reflecting
the award of orders for continuing support of the operational
capability and training of the Saudi armed forces under the SBDCP
to the end of 2016. Contracts were previously let on an annual
basis.
Sales(1) in 2012 were GBP4.1bn, 9% higher than 2011 on a
like-for-like basis, reflecting increased support activity on the
Salam Typhoon programme and weapons deliveries under the TSP.
Underlying EBITA(2) was GBP417m (2011 GBP449m). Return on sales
reduced to 10.2% (2011 11.8%) as 2011 benefited from strong
performance and risk reduction on the Tornado upgrade and core
support programmes in Saudi Arabia.
Operating cash inflow(3) of GBP506m (2011 GBP80m) reflected
acceleration of advances on TSP.
Operational performance
Saudi Arabia
Through the entry into service of Typhoon and the continued
development of the in-country industrial base, the Group remains
committed to developing a greater indigenous capability in Saudi
Arabia.
On the Salam programme, UK final assembly of the remaining 48 of
the 72 Typhoon aircraft has commenced and deliveries are expected
to resume in 2013. Work to expand the multi-role capabilities of
the Royal Saudi Air Force (RSAF) Typhoon is progressing to
schedule.
The initial three-year Typhoon support contract finished at the
end of June and two subsequent six-month extensions have been
secured. Discussions continue with the customer on the next five
years of support.
Discussions on Typhoon price escalation with the Saudi Arabian
government remain ongoing. Negotiations are also ongoing for the
provision of maintenance and upgrade facilities in-Kingdom, and
further capability enhancement of the aircraft.
The business continues to support the operational capability of
both the RSAF and Royal Saudi Naval Forces (RSNF). A GBP1.6bn
contract was awarded in May to upgrade the RSAF's aircrew training
aircraft, involving the supply of, and initial support for, Hawk
advanced jet trainer and Pilatus PC-21 training aircraft. The
business was also awarded orders totalling GBP3.4bn for support to
the end of 2016, including the provision of manpower, logistics and
training to the RSAF.
Under the TSP, the upgrade of the RSAF Tornado fleet is
complete, with all of the contracted aircraft having been delivered
back into the RSAF fleet. Delivery of Storm Shadow missiles to the
RSAF under the TSP is progressing in line with the agreed programme
schedule.
Work continues on the first ship re-fit on the minehunter
mid-life update programme. The ship is due to be handed back to the
RSNF customer during the second half of 2013.
On the C4I (Command, Control, Communications, Computers &
Intelligence) programme, the business continues to seek an
acceptable closure of the contract with the customer.
Australia
Integration of the first of two Landing Helicopter Docks
commenced at the Williamstown shipyard following the arrival of the
hull from subcontractor Navantia in Spain. The second hull was
launched at Navantia's Ferrol shipyard.
A total of nine hull blocks have been constructed and delivered
under the A$209m (GBP134m) Air Warfare Destroyer contract,
completing the Group's involvement in the first two ships of the
three being built.
In 2012, the business completed the multi-year project to
modernise 431 M113 armoured personnel carriers for the Australian
Army.
The first of seven Royal Australian Navy ANZAC Class frigates is
being upgraded with anti-ship missile defence capability at the
Henderson shipyard under a A$267m (GBP171m) contract signed in
January 2012.
The business has been selected as the preferred tenderer to
provide ongoing in-service support for the Royal Australian Air
Force's Hawk Lead-In Fighter fleet and contract negotiations are
ongoing.
The business was awarded an in-service electronic warfare
support contract for the Wedgetail airborne early warning and
control aircraft fleet to 2015 with a value up to A$68m
(GBP43m).
Whilst the business submitted a bid for the next-generation
Battlespace Communications System, the decision was taken to
withdraw from this competition after a breach of tender protocols
had occurred during its participation in the initial tender
process.
India
Following a strategic review of the Defence Land Systems India
(DLSI) joint venture, it has been jointly agreed that Mahindra
& Mahindra will acquire BAE Systems' 26% shareholding in DLSI.
This decision is a reflection of the shareholders' belief that they
can best meet customer requirements and address market
opportunities on a case-by-case basis, including continuing to
explore opportunities for co-operating on specific defence
projects.
BAE Systems is participating as a subcontractor to Bharat
Electronics Limited (BEL) on the Tactical Communications Systems
programme for the Indian military, for which BEL has been selected
as one of two design authorities.
The Indian government has issued a Letter of Request to the US
government under the US Foreign Military Sales process for the
supply of 145 M777 howitzers for the Indian Army.
Together with its Eurofighter industry partners, the Group
continues to monitor the Medium Multi-Role Combat Aircraft
competition and stands ready to support the Indian government's
procurement process.
The Group has received a request for proposal for a third batch
of Hawk advanced jet trainer aircraft for the Indian Air Force.
Oman
The contract for the supply of Typhoon and Hawk aircraft awarded
in December 2012 builds on the close partnership with the Omani
armed forces and provides the platform to ensure this relationship
is further developed. The Group has a long history of working
closely with the Omani armed forces, and currently supports their
existing air, land and maritime platforms, such as air defence
radars, Challenger tanks, and Jaguar and Hawk aircraft.
MBDA
In the export market, a significant order was received from
India in early 2012 for MICA air-to-air missiles as part of the
Indian Air Force's Mirage 2000 upgrade.
In the domestic market, the business secured an important
support contract for the Principal Anti-Air Missile System and a
development contract for the Future Local Anti-Air Defence System.
The business continues to pursue the Anglo-French joint development
and production opportunity for the Future Anti-Ship Guided Weapon -
Anti-Navire Léger.
Development programmes continue to progress well. The Meteor
beyond visual range air-to-air missile successfully concluded its
guided firing programme.
Looking forward
In the Kingdom of Saudi Arabia, the Group seeks to build upon
its long-term presence through delivering current programmes and
industrialisation, and developing new business in support of the
Saudi military and security forces.
Following agreement of the training aircraft and support orders
under the SBDCP in 2012, the focus turns towards mobilising
activities on the next phases of these programmes.
In Australia, BAE Systems will continue to support the
Department of Defence by working with the customer to deliver cost
and service improvements. The business continues to explore and
secure opportunities in adjacent markets, including commercial
maritime repair and support, and commercial fabrication for the
natural resources industry.
In India, significant aircraft and artillery opportunities
continue to be pursued.
In MBDA, whilst domestic budgetary pressures continue, export
markets are anticipated to grow, potentially benefiting from
significant military aircraft procurements.
1 Including share of equity accounted investments.
2 Earnings before amortisation and impairment of intangible
assets, finance costs and taxation expense (EBITA) excluding
non-recurring items (see above).
3 Net cash inflow from operating activities after capital
expenditure (net) and financial investment, dividends from equity
accounted investments, and assets contributed to Trust.
4 Comprises funded and unfunded unexecuted customer orders.
5 Includes both Group-funded and customer-funded
expenditure.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December
2012 2011
----------------- -----------------
Total Total
Notes GBPm GBPm GBPm GBPm
---------------------------------------------------- ----- ------- -------- ------- --------
Continuing operations
Combined sales of Group and share of equity
accounted investments 2 17,834 19,154
Less: share of sales of equity accounted
investments 2 (1,214) (1,384)
---------------------------------------------------- ----- ------- -------- ------- --------
Revenue 2 16,620 17,770
Operating costs (15,353) (16,478)
Other income 280 157
---------------------------------------------------- ----- ------- -------- ------- --------
Group operating profit 1,547 1,449
Share of results of equity accounted investments 93 131
---------------------------------------------------- ----- ------- -------- ------- --------
Underlying EBITA(1) 1,895 2,025
Non-recurring items(2) 103 (78)
------- -------
EBITA 1,998 1,947
Amortisation (226) (239)
Impairment (86) (109)
Financial (expense)/income of equity accounted
investments (4) 8
Taxation expense of equity accounted investments (42) (27)
------- -------
Operating profit 2 1,640 1,580
Financial income 1,326 1,294
Financial expense (1,597) (1,408)
------- -------
Finance costs 3 (271) (114)
---------------------------------------------------- ----- ------- -------- ------- --------
Profit before taxation 1,369 1,466
Taxation expense (295) (206)
---------------------------------------------------- ----- ------- -------- ------- --------
Profit for the year - continuing operations 1,074 1,260
Profit/(loss) for the year - discontinued
operations 5 (4)
---------------------------------------------------- ----- ------- -------- ------- --------
Profit for the year 1,079 1,256
---------------------------------------------------- ----- ------- -------- ------- --------
Attributable to:
Equity shareholders 1,068 1,240
Non-controlling interests 11 16
---------------------------------------------------- ----- ------- -------- ------- --------
1,079 1,256
---------------------------------------------------- ----- ------- -------- ------- --------
Earnings per share 4
Basic earnings per share 33.0p 36.9p
Diluted earnings per share 32.8p 36.7p
Earnings per share - continuing operations
Basic earnings per share 32.8p 37.0p
Diluted earnings per share 32.6p 36.8p
1 Earnings before amortisation and impairment of intangible
assets, finance costs and taxation expense (EBITA) excluding
non-recurring items.
2 Comprises profit on disposal of businesses GBP103m (2011 loss
GBP29m) and regulatory penalties GBPnil (2011 GBP49m).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December
2012 2011
----------------------------- -----------------------------
Other Retained Other Retained
reserves earnings Total reserves earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- --------- --------- ------- --------- --------- -------
Profit for the year - 1,079 1,079 - 1,256 1,256
--------------------------------------------- --------- --------- ------- --------- --------- -------
Other comprehensive income
Items that will not be reclassified
to the income statement:
Net actuarial losses on defined
benefit pension schemes:
Subsidiaries - (796) (796) - (1,522) (1,522)
Equity accounted investments - (84) (84) - (45) (45)
Tax on items that will not be
reclassified to the income statement - 173 173 - 387 387
Items that may be reclassified
to the income statement:
Currency translation on foreign
currency net investments:
Subsidiaries (164) - (164) (19) - (19)
Equity accounted investments (25) - (25) (17) - (17)
Reclassification of cumulative
currency translation reserve on
disposal (97) - (97) (14) - (14)
Amounts charged to hedging reserve (21) - (21) (56) - (56)
Fair value movements on available-for-sale
investments - - - - 5 5
Reclassification of fair value
movements on available-for-sale
investments - - - - (21) (21)
Tax on items that may be reclassified
to the income statement 5 - 5 17 - 17
--------------------------------------------- --------- --------- ------- --------- --------- -------
Total other comprehensive income
for the year (net of tax) (302) (707) (1,009) (89) (1,196) (1,285)
--------------------------------------------- --------- --------- ------- --------- --------- -------
Total comprehensive income for
the year (302) 372 70 (89) 60 (29)
--------------------------------------------- --------- --------- ------- --------- --------- -------
Attributable to:
Equity shareholders (302) 361 59 (89) 44 (45)
Non-controlling interests - 11 11 - 16 16
--------------------------------------------- --------- --------- ------- --------- --------- -------
(302) 372 70 (89) 60 (29)
--------------------------------------------- --------- --------- ------- --------- --------- -------
NOTES TO THE ACCOUNTS - INCOME STATEMENT
1. Preparation
The consolidated financial statements of BAE Systems plc have
been prepared in accordance with EU-endorsed International
Financial Reporting Standards (IFRS) and the Companies Act 2006
applicable to companies reporting under IFRS.
With effect from 1 January 2012, the Group early adopted
amendments to IAS 1, Presentation of Financial Statements, which
requires items within Other Comprehensive Income that may be
reclassified to the income statement to be grouped together. This
amendment is concerned with disclosure only and has no impact on
the reported results or financial position of the Group.
There were no other changes in accounting policies during the
year.
The consolidated financial statements are presented in pounds
sterling and, unless stated otherwise, rounded to the nearest
million. They have been prepared under the historical cost
convention, as modified by the revaluation of available-for-sale
financial assets, and other relevant financial assets and financial
liabilities (including derivative instruments).
2. Segmental analysis
Sales and revenue by reporting segment
Combined sales
of Less: Add:
Group and sales by equity sales to equity
share of equity accounted accounted
accounted investments investments investments Revenue
------------------------ ------------------ ------------------ --------------
2012 2011 2012 2011 2012 2011 2012 2011
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----------- ----------- -------- -------- -------- -------- ------ ------
Electronic Systems 2,507 2,645 (52) (49) 52 49 2,507 2,645
Cyber & Intelligence 1,402 1,399 - - - - 1,402 1,399
Platforms & Services
(US) 4,539 5,305 (70) (52) 1 2 4,470 5,255
Platforms & Services
(UK) 5,646 6,258 (1,430) (1,476) 1,346 1,374 5,562 6,156
Platforms & Services
(International) 4,071 3,794 (830) (1,039) - - 3,241 2,755
HQ 267 233 (267) (233) - - - -
-------------------------- ----------- ----------- -------- -------- -------- -------- ------ ------
18,432 19,634 (2,649) (2,849) 1,399 1,425 17,182 18,210
Intra-group sales/revenue (598) (480) 2 3 34 37 (562) (440)
-------------------------- ----------- ----------- -------- -------- -------- -------- ------ ------
17,834 19,154 (2,647) (2,846) 1,433 1,462 16,620 17,770
-------------------------- ----------- ----------- -------- -------- -------- -------- ------ ------
Reporting segment result
Amortisation
of Impairment Reporting
Underlying Non-recurring intangible of intangible segment
EBITA(1) items(2) assets assets result
------------ --------------- -------------- ---------------- ------------
2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----- ----- ------- ------ ------ ------ ------- ------- ----- -----
Electronic Systems 356 386 - - (22) (15) (2) - 332 371
Cyber & Intelligence 124 136 - - (76) (64) - - 48 72
Platforms & Services
(US) 394 478 103 (29) (92) (118) (84) (75) 321 256
Platforms & Services
(UK) 689 658 - - (28) (32) - (34) 661 592
Platforms & Services
(International) 417 449 - - (8) (10) - - 409 439
HQ (85) (82) - (49) - - - - (85) (131)
--------------------------- ----- ----- ------- ------ ------ ------ ------- ------- ----- -----
1,895 2,025 103 (78) (226) (239) (86) (109) 1,686 1,599
--------------------------- ----- ----- ------- ------ ------ ------ ------- -------
Financial (expense)/income
of equity accounted
investments (4) 8
Taxation expense
of equity accounted
investments (42) (27)
--------------------------- ----- ----- ------- ------ ------ ------ ------- ------- ----- -----
Operating profit 1,640 1,580
Finance costs (271) (114)
--------------------------- ----- ----- ------- ------ ------ ------ ------- ------- ----- -----
Profit before taxation 1,369 1,466
Taxation expense (295) (206)
--------------------------- ----- ----- ------- ------ ------ ------ ------- ------- ----- -----
Profit for the
year - continuing
operations 1,074 1,260
--------------------------- ----- ----- ------- ------ ------ ------ ------- ------- ----- -----
1 Earnings before amortisation and impairment of intangible
assets, finance costs and taxation expense (EBITA) excluding
non-recurring items.
2 Comprises profit on disposal of businesses GBP103m (2011 loss
GBP29m) and regulatory penalties GBPnil (2011 GBP49m).
3. Finance costs
2012 2011
GBPm GBPm
--------------------------------------------------------------- ------- -------
Interest income 39 30
Income from financial assets at fair value through profit
or loss - 4
Expected return on pension scheme assets 874 989
Reclassification of fair value movements on available-for-sale
investments - 21
Gain on remeasurement of financial instruments at fair
value through profit or loss 280 174
Foreign exchange gains 133 76
--------------------------------------------------------------- ------- -------
Financial income 1,326 1,294
--------------------------------------------------------------- ------- -------
Interest expense on bonds and other financial instruments(1) (187) (204)
Charges relating to early redemption of debt - (13)
Facility fees (7) (7)
Net present value adjustments (56) (33)
Interest charge on pension scheme liabilities (929) (965)
Loss on remeasurement of financial instruments at fair
value through profit or loss (250) (163)
Foreign exchange losses (168) (23)
--------------------------------------------------------------- ------- -------
Financial expense (1,597) (1,408)
--------------------------------------------------------------- ------- -------
Net finance costs (271) (114)
--------------------------------------------------------------- ------- -------
Additional analysis
2012 2011
GBPm GBPm
--------------------------------------------------------------- ----- -----
Net finance costs:
Group (271) (114)
Share of equity accounted investments (4) 8
--------------------------------------------------------------- ----- -----
(275) (106)
--------------------------------------------------------------- ----- -----
Analysed as:
Underlying interest (expense)/income:
Group(1) (211) (210)
Share of equity accounted investments 7 11
--------------------------------------------------------------- ----- -----
(204) (199)
Other:
Group:
Net financing (charge)/credit on pensions (55) 24
Market value and foreign exchange adjustments on financial
instruments and investments (5) 85
Charges relating to early redemption of debt - (13)
Share of equity accounted investments (11) (3)
--------------------------------------------------------------- ----- -----
(275) (106)
--------------------------------------------------------------- ----- -----
1 2011 restated to exclude GBP13m of pre-tax charges relating to
early redemption of debt, with GBP28m that would have been incurred
in future years remaining within underlying interest.
4. Earnings per share
2012 2011
---------------------- ----------------------
Basic Diluted Basic Diluted
pence pence pence pence
per per per per
GBPm share share GBPm share share
-------------------------------------------- ----- ------ ------- ----- ------ -------
Profit for the year attributable
to equity shareholders 1,068 33.0 32.8 1,240 36.9 36.7
Represented by:
----- ------ ------- ----- ------ -------
Continuing operations 1,063 32.8 32.6 1,244 37.0 36.8
Discontinued operations 5 0.2 0.2 (4) (0.1) (0.1)
----- ------ ------- ----- ------ -------
(Deduct)/add back:
(Profit)/loss on disposal of businesses (103) 29
Regulatory penalties - 49
Net financing charge/(credit) on
pensions, post tax 50 (18)
Market value and foreign exchange
adjustments on financial instruments
and investments, post tax 4 (61)
Charges relating to early redemption
of debt, post tax - 10
Amortisation and impairment of intangible
assets, post tax 192 188
Impairment of goodwill 57 94
-------------------------------------------- ----- ------ ------- ----- ------ -------
Underlying earnings, post tax 1,268 39.1 39.0 1,531 45.5 45.3
-------------------------------------------- ----- ------ ------- ----- ------ -------
Represented by:
Continuing operations 1,263 38.9 38.8 1,535 45.6 45.4
Discontinued operations 5 0.2 0.2 (4) (0.1) (0.1)
-------------------------------------------- ----- ------ ------- ----- ------ -------
1,268 39.1 39.0 1,531 45.5 45.3
-------------------------------------------- ----- ------ ------- ----- ------ -------
Underlying earnings excluding R&D
tax benefit (2011 GBP197m) 1,334 39.6 39.4
-------------------------------------------- ----- ------ ------- ----- ------ -------
Represented by:
Continuing operations 1,338 39.7 39.5
Discontinued operations (4) (0.1) (0.1)
-------------------------------------------- ----- ------ ------- ----- ------ -------
1,334 39.6 39.4
-------------------------------------------- ----- ------ ------- ----- ------ -------
Millions Millions Millions Millions
-------------------------------------- -------- -------- -------- --------
Weighted average number of shares
used in calculating basic earnings
per share 3,244 3,244 3,365 3,365
Incremental shares in respect of
employee share schemes 14 17
-------------------------------------- -------- -------- -------- --------
Weighted average number of shares
used in calculating diluted earnings
per share 3,258 3,382
-------------------------------------- -------- -------- -------- --------
Underlying earnings per share is presented in addition to that
required by IAS 33, Earnings per Share, to align the adjusted
earnings measure with the performance measure reviewed by the
directors. The directors consider that this gives a more
appropriate indication of underlying performance.
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December
2012 2011
Notes GBPm GBPm
----------------------------------------------------------- ----- ------- -------
Profit for the year 1,079 1,256
Taxation expense 296 211
Share of results of equity accounted investments (93) (131)
Net finance costs 271 117
Depreciation, amortisation and impairment 669 751
Profit on disposal of property, plant and equipment (7) (17)
Profit on disposal of investment property (12) (21)
(Profit)/loss on disposal of businesses (103) 15
Cost of equity-settled employee share schemes 57 68
Movements in provisions (224) (148)
Decrease in liabilities for retirement benefit obligations (859) (287)
Decrease/(increase) in working capital:
Inventories 6 (85)
Trade and other receivables 447 191
Trade and other payables 931 (969)
----------------------------------------------------------- ----- ------- -------
Cash inflow from operating activities 2,458 951
Interest paid (170) (212)
Taxation paid (115) (257)
----------------------------------------------------------- ----- ------- -------
Net cash inflow from operating activities 2,173 482
----------------------------------------------------------- ----- ------- -------
Dividends received from equity accounted investments 94 88
Interest received 23 32
Income from financial assets at fair value through
profit or loss - 4
Purchases of property, plant and equipment, and investment
property (359) (359)
Purchases of intangible assets (43) (24)
Proceeds from sale of property, plant and equipment,
and investment property 115 115
Purchase of subsidiary undertakings (net of cash acquired) (5) (532)
Equity accounted investment funding (6) (1)
Proceeds from sale of subsidiary undertakings (net
of cash disposed) 101 124
Proceeds from sale of financial assets at fair value
through profit or loss - 152
Proceeds from sale of other investments - 1
Net proceeds from sale of other deposits/securities - 265
----------------------------------------------------------- ----- ------- -------
Net cash outflow from investing activities (80) (135)
----------------------------------------------------------- ----- ------- -------
Purchase of treasury shares - (503)
Purchase of own shares (16) (6)
Equity dividends paid 7 (620) (606)
Dividends paid to non-controlling interests (11) (22)
Cash outflow from matured derivative financial instruments (119) (34)
Cash outflow from movement in cash collateral (2) -
Cash inflow from loans 1,863 2,693
Cash outflow from repayment of loans (1,975) (2,541)
----------------------------------------------------------- ----- ------- -------
Net cash outflow from financing activities (880) (1,019)
----------------------------------------------------------- ----- ------- -------
Net increase/(decrease) in cash and cash equivalents(1) 1,213 (672)
Cash and cash equivalents at 1 January 2,136 2,802
Effect of foreign exchange rate changes on cash and
cash equivalents (15) 6
----------------------------------------------------------- ----- ------- -------
Cash and cash equivalents at 31 December 3,334 2,136
----------------------------------------------------------- ----- ------- -------
Comprising:
Cash and cash equivalents(2) 3,355 2,141
Overdrafts (21) (5)
----------------------------------------------------------- ----- ------- -------
Cash and cash equivalents at 31 December 3,334 2,136
----------------------------------------------------------- ----- ------- -------
1 Includes net cash inflow from discontinued operations of GBP2m
(2011 GBP51m).
2 Includes GBPnil (2011 GBP403m) of cash held in Trust for the
benefit of the Group's main pension scheme (see note 5).
CONSOLIDATED BALANCE SHEET
as at 31 December
2012 2011
Notes GBPm GBPm
--------------------------------------------------- ----- -------- --------
Non-current assets
Intangible assets 10,928 11,465
Property, plant and equipment 2,285 2,496
Investment property 122 130
Equity accounted investments 265 783
Other investments 5 5
Other receivables 254 314
Other financial assets 62 118
Deferred tax assets 1,375 1,409
--------------------------------------------------- ----- -------- --------
15,296 16,720
--------------------------------------------------- ----- -------- --------
Current assets
Inventories 655 716
Trade and other receivables including amounts due
from customers for contract work 2,873 3,369
Current tax 11 60
Other financial assets 64 77
Cash and cash equivalents 3,355 2,141
Assets held for sale 20 18
--------------------------------------------------- ----- -------- --------
6,978 6,381
--------------------------------------------------- ----- -------- --------
Total assets 22,274 23,101
--------------------------------------------------- ----- -------- --------
Non-current liabilities
Loans (2,967) (2,682)
Trade and other payables (1,481) (571)
Retirement benefit obligations 5 (4,607) (4,673)
Other financial liabilities (66) (74)
Deferred tax liabilities (13) (26)
Provisions (449) (501)
(9,583) (8,527)
--------------------------------------------------- ----- -------- --------
Current liabilities
Loans and overdrafts (21) (518)
Trade and other payables (8,067) (8,531)
Other financial liabilities (88) (284)
Current tax (422) (468)
Provisions (297) (453)
Liabilities held for sale (22) (21)
--------------------------------------------------- ----- -------- --------
(8,917) (10,275)
--------------------------------------------------- ----- -------- --------
Total liabilities (18,500) (18,802)
--------------------------------------------------- ----- -------- --------
Net assets 3,774 4,299
--------------------------------------------------- ----- -------- --------
Capital and reserves
Issued share capital 90 90
Share premium 1,249 1,249
Other reserves 5,079 5,381
Retained earnings - deficit (2,698) (2,480)
--------------------------------------------------- ----- -------- --------
Total equity attributable to equity holders of the
parent 3,720 4,240
Non-controlling interests 54 59
--------------------------------------------------- ----- -------- --------
Total equity 3,774 4,299
--------------------------------------------------- ----- -------- --------
Approved by the Board on 20 February 2013 and signed on its
behalf by:
I G King P J Lynas
Chief Executive Group Finance Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December
Attributable to equity holders
of the parent
-------------------------------------------------
Issued
share Share Other Retained Non-controlling Total
capital premium reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- -------- --------- --------- ------- --------------- -------
At 1 January 2012 90 1,249 5,381 (2,480) 4,240 59 4,299
Profit for the year - - - 1,068 1,068 11 1,079
Total other comprehensive
income for the year - - (302) (707) (1,009) - (1,009)
Share-based payments - - - 57 57 - 57
Purchase of own shares - - - (16) (16) - (16)
Ordinary share dividends - - - (620) (620) (11) (631)
Other - - - - - (5) (5)
---------------------------- -------- -------- --------- --------- ------- --------------- -------
At 31 December 2012 90 1,249 5,079 (2,698) 3,720 54 3,774
---------------------------- -------- -------- --------- --------- ------- --------------- -------
At 1 January 2011 90 1,249 5,470 (1,477) 5,332 71 5,403
Profit for the year - - - 1,240 1,240 16 1,256
Total other comprehensive
income for the year - - (89) (1,196) (1,285) - (1,285)
Share-based payments - - - 68 68 - 68
Purchase of own shares - - - (6) (6) - (6)
Purchase of treasury shares - - - (503) (503) - (503)
Ordinary share dividends - - - (606) (606) (22) (628)
Other - - - - - (6) (6)
---------------------------- -------- -------- --------- --------- ------- --------------- -------
At 31 December 2011 90 1,249 5,381 (2,480) 4,240 59 4,299
---------------------------- -------- -------- --------- --------- ------- --------------- -------
NOTES TO THE ACCOUNTS - BALANCE SHEET
5. Retirement benefit obligations
US and
UK other Total
GBPm GBPm GBPm
------------------------------------------------------------ ------- ------ -------
Total IAS 19 deficit at 1 January 2012 (4,676) (909) (5,585)
Actual return on assets above expected return 478 211 689
Increase in liabilities due to changes in assumptions
and experience (1,307) (416) (1,723)
Additional contributions in excess of service cost 698 - 698
Recurring contributions in excess of service cost 145 92 237
Past service cost (26) (1) (27)
Curtailment gains - 26 26
Net financing (charge)/credit (107) 35 (72)
Foreign exchange adjustment - 38 38
Movement in US healthcare schemes - 11 11
------------------------------------------------------------ ------- ------ -------
Total IAS 19 deficit at 31 December 2012 (4,795) (913) (5,708)
Allocated to equity accounted investments and other
participating employers 1,148 - 1,148
------------------------------------------------------------ ------- ------ -------
Group's share of IAS 19 deficit excluding Group's
share of amounts allocated to equity accounted investments
and other participating employers at 31 December 2012 (3,647) (913) (4,560)
------------------------------------------------------------ ------- ------ -------
Represented by:
Pension prepayments (within trade and other receivables) - 47 47
Retirement benefit obligations (3,647) (960) (4,607)
------------------------------------------------------------ ------- ------ -------
(3,647) (913) (4,560)
------------------------------------------------------------ ------- ------ -------
Certain of the Group's equity accounted investments participate
in the Group's defined benefit schemes as well as Airbus SAS, the
Group's share of which was disposed of in 2006. As these schemes
are multi-employer schemes, the Group has allocated an appropriate
share of the IAS 19, Employee Benefits, pension deficit to the
equity accounted investments and Airbus SAS based upon a consistent
allocation method intended to reflect a reasonable approximation of
their share of the deficit. The Group's share of the IAS 19 pension
deficit allocated to the equity accounted investments is included
in the balance sheet within equity accounted investments. 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.
The Group's share of the IAS 19 deficit excluding the Group's
share of amounts allocated to equity accounted investments and
other participating employers is GBP3.4bn (31 December 2011
GBP3.4bn) after tax.
Life expectancy
In February 2013, with the agreement of the Company, the
trustees of the BAE Systems 2000 Pension Plan (2000 Plan) entered
into an arrangement with Legal & General to insure against
longevity risk for the current pensioner population, covering
GBP2.7bn of pension scheme liabilities. This will reduce the
funding volatility relating to increasing life expectancy.
Contributions
During the year, a total of GBP428m was paid into the BAE
Systems Pension Scheme (Main Scheme) and 2000 Plan from the Trust
(see below). In addition, GBP75m was contributed by the Group to
the Main Scheme upon sale of certain properties. The total Group
contributions made to the defined benefit schemes in the year ended
31 December 2012 were GBP1,029m (2011 GBP515m) excluding those
amounts allocated to equity accounted investments and participating
employers of GBP128m (2011 GBP70m).
In 2013, the Group expects to make regular contributions at a
similar level to the recurring contributions made in 2012 and
additional contributions, such that total deficit funding, in
excess of service cost, is expected to be approximately
GBP0.4bn.
The Group incurred a charge in respect of the cash contributions
of GBP129m (2011 GBP119m) paid to defined contribution schemes for
employees.
During the year, the Group contributed GBP25m into Trust for the
benefit of the 2000 Plan. On 27 September, GBP387m was paid out of
the Trust into the Main Scheme and GBP25m was paid out of the Trust
into the 2000 Plan. In December, the remaining GBP16m was paid into
the Main Scheme. These payments are included within additional
contributions in excess of service cost in the table above. The
Group considers the contributions made to the Trust to be
equivalent to the other lump sum contributions it makes into the
Group's pension schemes and, accordingly, presents below a
definition of the pension deficit including them.
2012 2011
GBPm GBPm
------------------------------------------ ------- -------
Group's share of IAS 19 deficit, net (4,560) (4,620)
Assets held in Trust - 403
------------------------------------------ ------- -------
Pension deficit (as defined by the Group) (4,560) (4,217)
------------------------------------------ ------- -------
NOTES TO THE ACCOUNTS - OTHER INFORMATION
6. Acquisition and disposal of subsidiaries
Subsidiaries disposed of during 2012 - continuing operations
In March, the Group completed the sale of its BAE Systems Safety
Products Inc. and Schroth Safety Products GmbH businesses (Safety
Products) in the US and Germany for cash consideration of
approximately $32m (GBP21m).
In July, the US-based Safariland, LLC (Safariland) business was
sold for cash consideration (after adjustment) of approximately
$124m (GBP78m).
Also in July, the Group sold the assets comprising its BAE
Systems Tensylon High Performance Materials Inc. (Tensylon)
business for cash consideration of $18m (GBP12m).
Summary
Safariland Other Total
GBPm GBPm GBPm
--------------------------------------------------------- ---------- ----- -----
Cash consideration 78 33 111
Transaction costs paid (1) (2) (3)
--------------------------------------------------------- ---------- ----- -----
Cash proceeds 77 31 108
Transaction costs accrued (1) - (1)
--------------------------------------------------------- ---------- ----- -----
Net proceeds 76 31 107
--------------------------------------------------------- ---------- ----- -----
Net assets disposed:
Intangible assets (23) (12) (35)
Property, plant and equipment (15) (4) (19)
Inventories (16) (14) (30)
Trade and other receivables (22) (3) (25)
Deferred tax (2) 6 4
Trade and other payables 13 2 15
Cash and cash equivalents (10) (1) (11)
--------------------------------------------------------- ---------- ----- -----
(75) (26) (101)
--------------------------------------------------------- ---------- ----- -----
Cumulative currency translation gain 84 13 97
--------------------------------------------------------- ---------- ----- -----
Profit on disposal of businesses - continuing operations 85 18 103
--------------------------------------------------------- ---------- ----- -----
Safariland and Tensylon were written down to fair value less
costs to sell prior to their disposal incurring impairment charges
to intangible assets of GBP48m and GBP12m, respectively.
Subsidiaries acquired during 2011
The Group acquired L-1 Identity Solutions, Inc.'s Intelligence
Services Group (L-1 ISG), Norkom Group plc (Norkom), ETI A/S (ETI),
Fairchild Imaging, Inc. (Fairchild) and stratsec.net Pty Limited
(stratsec). With the exception of Fairchild, the Group acquired
100% of the shares of these entities. The Group acquired the
remaining 91.3% interest in Fairchild which it did not already
own.
If the acquisitions had occurred on 1 January 2011, combined
sales of Group and share of equity accounted investments would have
been GBP19.2bn, revenue GBP17.8bn and profit GBP1,252m from
continuing operations for the year ended 31 December 2011.
For all acquisitions made during 2011, fair values were
finalised in 2012. In accordance with IFRS 3, Business
Combinations, the Group has adjusted the fair values attributable
to the Norkom and ETI acquisitions during 2012. The net increase in
goodwill of GBP2m is not material to the consolidated accounts and,
as such, the Group has not restated the balance sheet at 31
December 2011.
Material acquisitions
Consolidated results for
the period from acquisition
to 31 December 2011
--------------------------------
Total Loss after
consideration Revenue EBITA(1) tax(2)
Acquisition Acquisition date GBPm GBPm GBPm GBPm
------------ ----------------- -------------- -------- --------- -----------
L-1 ISG 15 February 2011 180 112 8 (2)
Norkom 18 February 2011 177 42 9 (3)
ETI 21 March 2011 135 39 5 (9)
------------ ----------------- -------------- -------- --------- -----------
1 Earnings before amortisation and impairment of intangible
assets, finance costs and taxation expense excluding integration
costs.
2 Includes amortisation charges on acquired intangible assets
totalling GBP39m.
7. Equity dividends
2012 2011
GBPm GBPm
----------------------------------------------------- ----- -----
Prior year final 11.3p dividend per ordinary share
paid in the year (2011 10.5p) 367 359
Interim 7.8p dividend per ordinary share paid in the
year (2011 7.5p) 253 247
----------------------------------------------------- ----- -----
620 606
----------------------------------------------------- ----- -----
After the balance sheet date, the directors proposed a final
dividend of 11.7p. The dividend, which is subject to shareholder
approval, will be paid on 3 June 2013 to shareholders registered on
19 April 2013. The ex-dividend date is 17 April 2013.
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 no later
than 10 May 2013.
8. Related party transactions
The Group has a related party relationship with its directors
and key management personnel, equity accounted investments and
pension plans.
Transactions occur with the equity accounted investments in the
normal course of business, are priced on an arm's-length basis and
settled on normal trade terms. The more significant transactions
are disclosed below:
Year ended Year ended
31 December 31 December
2012 2011
GBPm GBPm
-------------------------------- ------------ ------------
Sales to related parties 1,433 1,462
Purchases from related parties 250 317
-------------------------------- ------------ ------------
31 December 31 December
2012 2011
GBPm GBPm
-------------------------------- ------------ ------------
Amounts owed by related parties 163 234
Amounts owed to related parties 708 1,161
-------------------------------- ------------ ------------
9. Annual General Meeting
This year's Annual General Meeting will be held on 8 May 2013.
Details of the resolutions to be proposed at that meeting will be
included in the notice of Annual General Meeting that will be sent
to shareholders at the end of March 2013.
10. Other information
The financial information for the year ended 31 December 2012
contained in this preliminary announcement was approved by the
Board on 20 February 2013. This announcement does not constitute
statutory accounts of the Company within the meaning of section 435
of the Companies Act 2006, but is derived from those accounts.
Statutory accounts for the year ended 31 December 2011 have been
delivered to the Registrar of Companies. Statutory accounts for the
year ended 31 December 2012 will be delivered to the Registrar of
Companies following the Company's Annual General Meeting.
The auditors have reported on those accounts. Their reports were
not qualified, did not include a reference to any matters to which
the auditors drew attention by way of emphasis without qualifying
their report, and did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006.
Cautionary statement: All statements other than statements of
historical fact included in this document, including, without
limitation, those regarding the financial condition, results,
operations and businesses of BAE Systems and its strategy, plans
and objectives and the markets and economies in which it operates,
are forward-looking statements. Such forward-looking statements
which reflect management's assumptions made on the basis of
information available to it at this time, involve known and unknown
risks, uncertainties and other important factors which could cause
the actual results, performance or achievements of BAE Systems or
the markets and economies in which BAE Systems operates to be
materially different from future results, performance or
achievements expressed or implied by such forward-looking
statements. BAE Systems plc and its directors accept no liability
to third parties in respect of this report save as would arise
under English law. Accordingly, any liability to a person who has
demonstrated reliance on any untrue or misleading statement or
omission shall be determined in accordance with schedule 10A of the
Financial Services and Markets Act 2000. It should be noted that
schedule 10A contains limits on the liability of the directors of
BAE Systems plc so that their liability is solely to BAE Systems
plc.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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