TIDMBA.
RNS Number : 6351C
BAE SYSTEMS PLC
24 February 2022
BAE Systems plc
Preliminary Announcement 2021
Results in brief
Financial performance measures as defined Financial performance measures derived
by the Group(1) from IFRS(2)
2021 2020 2021 2020
---------------------------- ------------ ------------ ---------------------- ---------- ----------
Sales GBP21,310m GBP20,862m Revenue GBP19,521m GBP19,277m
---------------------------- ------------ ------------ ---------------------- ---------- ----------
Underlying EBIT(3) GBP2,205m GBP2,037m Operating profit GBP2,389m GBP1,930m
---------------------------- ------------ ------------ ---------------------- ---------- ----------
Underlying earnings
per share(3)
excluding one-off tax
benefit (2021 only)(4) 47.8p 44.3p
including one-off tax Basic earnings per
benefit (2021 only)(4) 50.7p 44.3p share 55.2p 40.7p
---------------------------- ------------ ------------- --------------------- ---------- ----------
Free cash flow(3)
excluding GBP1bn pension
contribution (2020
only)
including GBP1bn pension GBP1,864m GBP1,367m
contribution (2020 Net cash flow from
only) GBP1,864m GBP367m operating activities GBP2,447m GBP1,166m
---------------------------- ------------ ------------ ---------------------- ---------- ----------
Net debt (excluding
lease liabilities) GBP(2,160)m GBP(2,718)m Order book GBP35.5bn GBP36.3bn
---------------------------- ------------ ------------ ---------------------- ---------- ----------
Order intake(5) GBP21,458m GBP20,915m Dividend per share(6) 25.1p 23.7p
---------------------------- ------------ ------------- --------------------- ---------- ----------
Group's share of
net post-employment
Order backlog(5) GBP44.0bn GBP45.2bn benefits deficit GBP(2.1)bn GBP(4.5)bn
---------------------------- ------------ ------------- --------------------- ---------- ----------
Charles Woodburn, Chief Executive , said: "Our strong results
reflect the outstanding efforts of our employees who have continued
to adapt and work closely with our customers, suppliers and trades
unions to deliver capabilities which keep nations and citizens
safe.
"We are continuing to evolve our business, increasing our
investments in advanced technologies to deliver differentiated
solutions to meet our customers' priorities.
"Our diverse portfolio, together with our focus on programme
execution, cash generation and efficiencies, is helping us to
navigate the challenging operating environment, meaning we are well
positioned for sustained top line and margin growth in the coming
years."
Our financial highlights
Financial performance measures as defined by the Group(1)
- Sales increased by GBP0.4bn to GBP21.3bn, a 5% increase,
excluding the impact of currency translation(7) .
- Underlying EBIT(3) increased to GBP2,205m, a 13% increase on a constant currency basis(7) .
- Underlying earnings per share(3) increased by 12% on a
constant currency basis(7) to 47.8p, excluding the impact of the
current year one--off tax benefit(4) .
- Free cash flow(3) was GBP1,864m (2020 inflow of GBP1,367bn,
excluding the GBP1bn contribution into the UK pension scheme).
- Net debt (excluding lease liabilities) decreased to GBP2,160m (2020 GBP2,718m).
- Order intake(5) increased by GBP0.6bn to GBP21.5bn (2020 GBP20.9bn).
- Order backlog(5) decreased by GBP1.2bn to GBP44.0bn (2020 GBP45.2bn).
Financial performance measures derived from IFRS(2)
- Revenue increased by GBP0.2bn to GBP19.5bn.
- Operating profit increased by GBP459m to GBP2,389m (2020 GBP1,930m).
- Basic earnings per share was 55.2p (2020 40.7p).
- Net cash flow from operating activities was GBP2,447m (2020
GBP1,166m, including the effect of the GBP1bn contribution to the
UK pension scheme).
- Order book decreased by GBP0.8bn to GBP35.5bn.
- Group's share of the pre-tax accounting net post-employment
benefits deficit decreased to GBP2.1bn, driven by higher discount
rates and strong asset performance (2020 deficit of GBP4.5bn).
Dividends and share buyback
- Final dividend of 15.2p per share making a total of 25.1p per
share in respect of the year ending 31 December 2021, an increase
of 6% over dividends in respect of the year ended 31 December 2020
of 23.7p per share. The total of 37.5p per share for 2020 includes
an interim dividend of 13.8p per share in respect of the year ended
31 December 2019, which was originally proposed as a 2019 final
dividend but subsequently deferred in the light of the COVID-19
pandemic.
- The GBP500m share buyback programme announced on 29 July 2021 was completed in February 2022.
1. We monitor the underlying financial performance of the Group
using alternative performance measures. These measures are not
defined in International Financial Reporting Standards (IFRS) and
therefore are considered to be non-GAAP (Generally Accepted
Accounting Principles) measures. Accordingly, the relevant IFRS
measures are also presented where appropriate. The purposes and
definitions of non-GAAP measures are provided in the Financial
glossary on page 12.
2. International Financial Reporting Standards.
3. With effect from 2021, the Group adopted the underlying EBIT
profitability measure, to include charges relating to software and
development intangible amortisation, in place of the underlying
EBITA measure. It reflects a better measure of underlying
profitability, by including amortisation of software and
development intangibles as these charges are viewed as a recurring
operational cost for the business. Underlying earnings per share
has also been recalculated to ensure consistency with the updated
operational profitability measure. The underlying performance for
2020 of segments and the Group has been re-presented on this new
basis. During 2020 the Group determined that Free cash flow was its
key performance measure for utilisation of cash at a Group level.
The Group continues to use Operating business cash flow as its key
segment metric, to monitor operational cash generation.
4. A one-off tax benefit of GBP94m was recognised in the year,
in respect of agreements reached regarding the exposure arising
from the April 2019 European Commission decision regarding the UK's
Controlled Foreign Company regime.
5. Including share of equity accounted investments.
6. The 2020 dividend per share of 23.7p is in respect of the
year ended 31 December 2020. An interim dividend of 13.8p per share
was paid in 2020, in respect of the year ended 31 December 2019,
having been proposed as a 2019 final dividend but deferred in light
of the pandemic.
7. Current year compared with prior year translated at current
year exchange rates.
Operational and strategic key points
Electronic Systems
- Cumulatively more than 1,000 electronic warfare systems delivered on F-35 programme
- Limited Interim Missile Warning System indefinite delivery,
indefinite quantity sustainment and support contract awarded worth
$872m (GBP644m) over ten years
- EPAWSS testing underway on F-15E and F-15EX aircraft
- Contract received from Defense Logistics Agency valued at more
than $640m (GBP473m) to deliver Increment 1 M-Code devices
- Rising demand for low and zero emission vehicles in our Power & Propulsion Solutions business
- Demand in our Controls & Avionics Solutions commercial
markets starting to recover from pandemic impacts
Platforms & Services (US)
- Selected to participate in the design concept phase for the US
Army's Optionally Manned Fighting Vehicle programme
- Consistent deliveries of the M109A7 Self-Propelled Howitzer
enabled the programme to surpass 350 cumulative system
deliveries
- Received a $600m (GBP443m) sustainment and technical support
services contract for Armored Multi-Purpose Vehicle, and AMPV
deliveries continued against the rebaselined customer schedule
- Amphibious Combat Vehicle deliveries against LRIP and design
development have begun on mission variants
- Contract received worth approximately $200m (GBP148m) from Sweden for 127 BvS10s
- Contract received exceeding $500m (GBP369m) for mid-life upgrades of Dutch CV90s
- US Ship Repair was significantly impacted by the pandemic, but
has seen some recent signs of recovery
- Ordnance Systems awarded additional contracts for modernisation projects at Holston
Air
- Qatar Typhoon and Hawk programme is progressing well, with
first Qatar Typhoon flight achieved in November and deliveries on
schedule to commence in 2022
- F-35 rear fuselage production reached full rate levels, with
151 assemblies completed in the year
- Production progressing to plan on the German Typhoon programme
- Initial entry into service of the future electronically
scanned European Common Radar Solution was achieved in December
- Tempest next-generation Future Combat Air System programme
continues to progress well, with initial Concept & Assessment
Phase contract secured
- Air sector continues to work closely with industry partners
and the UK government to continue to fulfil contractual support
arrangements in Saudi Arabia
- Australia Hunter Class Frigate programme continues through
prototyping, with good engagement with the Commonwealth to agree
revised schedule for production to commence
- MBDA won several export orders on air platforms
Maritime
- Construction of first three City Class Type 26 frigates for the Royal Navy is now underway
- Canadian Surface Combatant programme entered a key design
milestone in December, ahead of moving into the next Functional
Design phase
- Fifth Astute Class submarine, Anson, launched in April, with
final installation and commissioning activities continuing to ready
her for scheduled exit in 2022
- Construction of the first two Dreadnought Class submarines continues to advance
- Contract awarded and e arly design and concept work underway
on Royal Navy's next generation of submarines
- Contracts worth more than GBP1bn received under UK Ministry of
Defence's Future Maritime Support Programme
- Maritime Services provided preparation and support
capabilities to the UK's Carrier Strike Group ahead of, and during,
its first operational deployment
- RBSL secured the Challenger 3 Main Battle Tank upgrade contract
Cyber & Intelligence
Intelligence & Security
- US-based Intelligence & Security business continues to
maintain its bid pipeline, perform on existing contracts and win
new orders
- Awarded a five-year, up to $478m (GBP353m) Systems Engineering
and Integration Support Services contract from the US Navy
Strategic Systems Programs office
- Awarded classified contracts from Department of Defense and
Intelligence Community customers in excess of $0.8bn (GBP0.6bn) to
deliver mission-enabling engineering services
- Agreement announced for the proposed acquisition of Bohemia
Interactive Simulations, a global software developer of simulation
and training solutions for allied military customers
Applied Intelligence
- Strong order intake and revenue growth driven by the
government- and defence-facing business units
- Increasing profitability, supported by strong programme
execution, productivity and cost base optimisation. Financial
Services' profitability benefited from restructuring in 2020
- Acquisition of In-Space Missions, a UK-based satellite and
satellite systems company, to accelerate our Space capabilities
Guidance for 2022
While the Group is subject to geopolitical and other
uncertainties, the following guidance is provided on current
expected operational performance.
The guidance is based on the measures used to monitor the
underlying financial performance of the Group. Reconciliations from
these measures to the financial performance measures defined in
International Financial Reporting Standards for 2021 are provided
in the Group financial review on pages 12 to 20.
Group guidance
With a strong year behind us, we look forward to continued
top-line growth with margin expansion and good cash delivery
against our rolling targets. Guidance is provided on the basis of
an exchange rate of $1.38:GBP1, which is in line with the actual
2021 exchange rate, therefore guidance is the same for both
reported and constant exchange rates .
For the year ending 31 December 2022, the Group's sales are
expected to grow in the 2% to 4% range over 2021. Sales growth is
expected in the Electronic Systems, Air, Maritime and Cyber &
Intelligence segments, whilst Platforms & Services (US) is
expected to be stable. Approximately 75% of the expected sales are
already in the order backlog.
Underlying EBIT is expected to increase in the range of 4% to
6%.
Finance costs are expected to be approximately GBP240m, with an
effective tax rate expected to be around 20%, and non-controlling
interest expected to be around GBP70m.
Underlying earnings per share is expected to increase in the
range of 4% to 6%. Sensitivity to EPS is around one pence for every
five cent movement.
Free cash flow for 2022 is anticipated to be in excess of
GBP1bn, with a three-year target for 2022 to 2024 in excess of
GBP4bn. The three-year cash flow target for the period 2020 to
2022, originally set at GBP3.5bn to GBP3.8bn, has been upgraded to
be in excess of GBP4bn.
Segment guidance(1)
The following table provides guidance by segment, aligned to the
Group guidance:
Year ended 31 December Expected underlying EBIT
2022 Expected sales margin(2,3)
======================= =============== ========================
Electronic Systems Up 2% to 4% 16% to 17%
Platforms & Services
(US) Stable 8% to 9%
Air Up 2% to 4% 10% to 11%
Maritime Up 3% to 5% 8% to 9%
Cyber & Intelligence Up 3% to 5% 8% to 9%
=========================== =========== ========================
1. The above guidance ranges do not reflect the establishment,
in 2022, of the Group's new Digital Intelligence business nor the
transition of our BAE Systems Australia business from the Air
segment to the Maritime segment. The re-presentation of 2021
segments to reflect these changes will be issued in due course.
2. Underlying EBIT as percentage of Sales.
3. In 2022, HQ underlying EBIT is expected to be broadly similar to 2021 (expense of GBP120m).
For further information please contact:
Investors Media Relations
Martin Cooper, Kristina Anderson,
Investor Relations Director Director, Media Relations
Telephone: +44 (0) 1252 383455 Telephone: +44 (0) 7540 628673
Email: investors@baesystems.com Email: kristina.anderson@baesystems.com
Analyst and investor presentation
A presentation, for analysts and investors, of the Group's
Results for 2021 will be available via webcast at 11am today (24
February 2022).
Details can be found on investors.baesystems.com, together with
presentation slides and a pdf copy of this report. A recording of
the webcast will be available for replay later in the day.
About BAE Systems
At BAE Systems, we provide some of the world's most advanced,
technology-led defence, aerospace and security solutions.
We employ a skilled workforce of 90,500 people(1) in more than
40 countries. We help our customers to stay a step ahead when
protecting people and national security, critical infrastructure
and vital information. We also work closely with local partners to
support economic development through the transfer of knowledge,
skills and technology .
1. Including share of equity accounted investments.
Preliminary results statement
Overview
At the start of 2021, we set out a refreshed investment case
reflecting the Group today, our competitive advantages, operational
focus areas to accelerate our evolution, and the financial outputs
we are seeking to drive. Against the backdrop of the ongoing global
pandemic and associated global macro impacts, we are pleased at the
progress we have made against these key operational themes.
Thanks to the outstanding efforts of our employees we have been
resilient and agile in adapting to the ever-evolving environment,
to address and meet customer requirements.
We delivered a strong set of financial results across all our
key measures as positive momentum from last year was maintained on
operational and cash flow performance, enabling us to increase our
returns to shareholders through a higher dividend and also through
the buyback programme announced in July 2021. This reflects our
confidence in the outlook and our ongoing focus on a balanced and
efficient capital allocation policy of investing in the business
and shareholder returns. The Group maintained its strong sales
balance between production and aftermarket services.
Our strategy remains consistent and is delivering results. This
year we have focused on our operational performance, continued to
invest in technology, made progress on our competitiveness and
accelerated our sustainability agenda.
We have long-term strength from our programmes, technologies and
customer relationships, with continued demand for our products and
services and we are leveraging our leading capabilities in evolving
markets. We take great pride in our role not only in supporting
national security, but also in contributing to the economic
prosperity of the countries in which we operate.
Our geographically diverse portfolio is aligned with growing
defence budgets and as expected, the near-term Brexit impacts
across the business have been limited. This geographic mix, the
programme spread and longevity of the positions mean we are not
overly dependent on a small number of programmes. These are key
factors in our resilience against a number of global macro
challenges and also underline the strength of our outlook.
Safety and wellbeing
The safety and wellbeing of our employees is paramount and it
remained our primary consideration as we continued to manage our
response to the global pandemic throughout the year. Our response
highlighted the positive societal impact this business can bring as
we deployed our capabilities, people and time, and worked with our
supply chains to support our communities and health services. We
are hugely proud of how our employees responded to the day-to-day
challenges. The strength of the relationships and collaborative
working with our customers, suppliers and trades unions has been
exceptional and a huge testament to all. Like all businesses, we
experienced challenges during this pandemic. We have had to be
agile and adapt, and make difficult decisions, but thanks to the
early actions we took to enhance the resilience of our business and
the remarkable fortitude of our people, we have continued to
deliver on our customers' priorities whilst also supporting the
social needs of our governments and communities.
As we worked to strengthen our culture of safety, we faced
additional challenges from the pandemic, which has required
significant changes in how we work. We remain focused on safety
across our enterprise and we are targeting our most challenging
sites through a comprehensive improvement plan including campaigns
across employee groups, implementing virtual reality safety
training, and introducing new and improved systems to reduce risk
related to safety, health, and environmental impacts.
The importance of our employees' wellbeing has been enhanced
during the pandemic as we have balanced work and personal
commitments. Our wellbeing programmes support employees in managing
their work and personal responsibilities. We continue to promote
mental health awareness programmes across the business and have
worked hard this year to increase our communications and engagement
along with introducing training for employees.
ESG
2021 has been about evolving, accelerating and integrating our
sustainability agenda which is fundamental to our business
performance. It aligns stakeholder priorities with the Group's ESG
risks and opportunities so that we can drive the success of the
Company for the benefit of our stakeholders.
We recognise that the way we do business and the actions and
behaviours we demonstrate are vital for the future strength of our
business and we want to continue to increase our ambitions and
accelerate our progress. We made some real strides in 2021, with
some notable highlights being: setting ourselves the target of
achieving net zero greenhouse gas emissions across our operations
by 2030 and joining the United Nations 'Race to Zero' campaign;
driving a bolder set of diversity ambitions to be recognised as a
leading employer in defence and security for valuing diversity and
inclusion; committing to cease handling white phosphorus; and
gaining accreditation as a real living wage UK employer. All are
examples of accelerated progress achieved through stakeholder
engagement underpinned by a strategic rationale.
The long-term outlook for the Group and the defence industry
means we need to anticipate change and ensure that we can continue
to improve upon what we do today, and into the future. We are
committed to building a sustainable future by having a clear
sustainability agenda focused on valuing and developing our people,
making a positive social and economic contribution to our
communities, developing innovative technology and collaborating
with our supply chains and reducing the environmental impacts of
our operations and products.
We will continue to review ways to integrate sustainability
practices holistically into our business, driven through, and
aligned with, our strategic objectives as we look to develop
sustainable solutions to meet ever-evolving customer requirements.
The progress we are making on our sustainability agenda has been
reflected with an improvement in our CDP score, and we have
maintained our AA leader class rating with MSCI.
2021 operational performance
Execution on the key strategic objectives of operational
excellence, competitiveness and technological innovation is vital
for the successful delivery of our order backlog, to deliver future
growth and a high-performing sustainable business.
Continually pushing operational performance improvement is
central to our strategy to ensure delivery of our order backlog and
improvements in long-term cash generation.
We have been pleased with our operational performance in 2021
and it is a great testament to our people that we can talk about an
almost 'normal' delivery given the environment in which we have
been operating over the last two years. We will look to make
further improvements and our increasing confidence in our programme
execution capabilities underlines our outlook for sales growth,
margin expansion and our rolling three-year cash targets.
Electronic Systems delivered another year of growth and good
programme execution. Sales were up 5% but were held back in the
last quarter as the Omicron surge tightened an already
pandemic-constrained labour market, and caused some supply chain
delays and disruptions. These challenges dampened what were
positive contributions from the 2020 acquisitions and strong
execution across key franchises, such as the electronic warfare and
precision-guided munition programmes. Our civil market operations
continue to be impacted by the COVID-19 pandemic, though there are
some signs of demand recovery in the commercial Controls &
Avionics Solutions and Power & Propulsion Solutions businesses
where we have leading positions.
In Platforms & Services (US), combat vehicle deliveries
continued, with the investment in new production capabilities and
processes enabling the business to consistently deliver at
increased volumes over multiple programmes. Compared to last year,
vehicle delivery volumes increased by more than 60%. US Ship Repair
made good progress resolving several challenged ship modernisation
programmes and recovering from COVID-19 and other operational
impacts. Work remains to be done to return to pre-pandemic levels
of performance.
The Air sector grew and maintained good operational performance.
Production moved to full rate levels on F-35 rear fuselage
assemblies, Typhoon production and support revenues increased as we
delivered on our build programmes, and we continued to provide
Typhoon operators with ongoing support and training services to
deliver availability, maintenance and upgrade enhancements. The
Tempest technology maturation programme is progressing well and we
secured the first contract for the Future Combat Air System Concept
& Assessment Phase.
In Maritime, we sustained the performance improvements seen last
year. Manufacturing levels increased on Type 26 with the first
three ships now in production and we launched the fifth Astute
Class submarine. Construction of the first two Dreadnought
submarines is progressing and in the Maritime Services business we
successfully supported the first major UK Carrier Strike Group
deployment.
Cyber and Intelligence delivered an increase in margin with
Applied Intelligence delivering much-improved profitability,
benefiting from heightened demand in the Government sector,
together with the results of our restructuring. Intelligence &
Security delivered growth in sales and profit as it performed on
its long-term support contracts, some of which are on the most
sensitive and critical US national security programmes. The
business maintained its bid pipeline to deliver a strong, stable
backlog position at year end.
Driving competitiveness and efficiency
On competitiveness, we have a number of programmes to achieve
efficiency and simplification across the Group building on the
lessons learned in the last year on working practices and cost
savings. We are also bringing data analytics to bear across the
Group to benchmark and improve efficiency, as well as investment in
new technologies and production techniques to maintain our drive to
continuously improve operational performance and value for our
customers.
Areas highlighted to date include the streamlining of processes,
general and administration cost savings, office footprint
requirements, flexible working practices and how we can be more
agile and adaptable to deliver our commitments in different
ways.
Portfolio
We continue to evaluate and increase value creation from our
portfolio through acquisitions and disposals as we align to our
customer needs and priorities in addressing the evolving threat
environment. The US acquisitions completed in 2020 are performing
well and construction is progressing on the new facility for the
GPS business to maintain delivery of market-leading technologies.
In respect of disposals, we sold the Filton and Broughton sites
generating a good cash result, the BAE Systems Rokar International
business, and our stake in Advanced Electronics Company, one of our
Saudi Arabian portfolio companies. We completed two new
acquisitions in 2021, both in the UK, firstly a small technology
bolt-on which enhances our data and digital capabilities, and
secondly In-Space Missions, a company that designs, builds and
operates satellites and satellite systems, enabling us to combine
BAE Systems' experience in highly secure satellite communications
with In-Space Missions' full lifecycle satellite capability. We
also announced we had entered into a definitive agreement to
acquire Bohemia Interactive Simulations, a leading developer of
advanced military simulation and training software, headquartered
in the US.
Advancing and further leveraging our technology
Investment in advanced technology and innovation is a benefit
which spans the breadth of the business, supporting operational
performance, competitiveness, our sustainability objectives and
growth aspirations. The threat environment consists not just of the
physical risks but also those in the grey zone which need to be
addressed. It is critical to our customers to have a fully
integrated combination of capabilities to negate these threats.
Against this backdrop we are increasing our self-funded research
and development investments and positioning the Group towards
future growth areas aligned to our customer priorities, by
identifying collaboration opportunities and investing in our
leading capabilities and technologies across electronic warfare,
combat aircraft, precision weaponry, cyber and the underwater
battlespace. From these established positions we are developing,
linking and transitioning solutions into priority areas such as
multi-domain networks, data analysis, autonomy, space and
sustainability-driven technology developments. While our R&D
investments are important, we sustain our leading positions through
collaboration with our customers, educational institutions and in
partnership with defence laboratories and research institutions
such as the Defence Science and Technology Laboratory, DARPA, the
Air Force Research Laboratory and the Office of Naval Research.
Additionally we accelerate the pace and reach of our innovation by
collaborating across our
global enterprise.
Reflecting the importance of technology investment, in 2022 we
launched the BAE Systems Digital Intelligence business which brings
together many of our digital transformation, cyber security,
complex data analysis and communication and information systems
capabilities from across the Group. We have exceptional talent and
world-leading innovation in these areas and the new business will
allow greater collaboration across the Group, and in time bring a
greater range of capabilities to our customers.
Demand outlook
We have a large order backlog and exceptional programme
positions, providing visibility of growth which was further
supported by order flow in 2021 that exceeded targets.
Our defence and security capabilities remain highly relevant in
an uncertain global environment with complex threats, the
requirement in many cases to recapitalise or upgrade ageing
equipment, and with the additional need for governments to drive a
domestic economic prosperity agenda in a post-pandemic world. This
backdrop has resulted in good prospects in existing and new
international markets for our products and services in air,
maritime, land, space and cyber security.
The US continues to represent the world's largest defence budget
and accounts for around 46% of our revenues.
Through a range of innovative technologies and proven
capabilities, our US business continues to sustain its robust
backlog and diverse portfolio of long-term defence programmes for
the US Armed Forces and international allies. The business
portfolio remains closely aligned with enduring customer priorities
and key focus areas outlined in the US National Defense Strategy,
to modernise and maintain military readiness, which we expect to
continue with the upcoming 2022 National Defense Strategy. The
business has been operating under extended Continuing Resolutions
in fiscal year 2022. While the Congressional budget and
appropriations impasse is not without risk, the threat environment
remains and is expected to result in continued support for US
defence spending in the coming years .
In the UK, the Defence Command Paper renewed commitments to our
major long-term programmes in complex warship, submarine and combat
aircraft design and build, allowing for long-term investment in
these key sovereign capabilities, as well as strong support for
cyber. The opportunity pipeline is positive with domestic, export
and collaboration opportunities identified. We also have the
capabilities to support our UK customer with its space
ambitions.
Our portfolio is well positioned to benefit from increased
defence spending in Asia Pacific through our Australia business,
which is already set to grow significantly due to our contracted
positions, and through export opportunities from our UK, US and
Australian business to the region. The AUKUS announcement in
September 2021 is strategically significant. As the largest defence
provider in the UK and Australia and a top ten prime contractor to
the US Department of Defense we are well positioned to support our
government customers in these nations as discussions progress. This
is a clear example of how nations are looking to coordinate
capabilities in multi-domain operations to address the threat
environment.
In Europe, a number of nations including Germany and France
continue to increase their defence budgets to address the threat
environment and in order to meet their NATO commitments. We remain
well placed through our positions on the Eurofighter Typhoon, our
shareholding in MBDA and our BAE Systems Hägglunds land business
based in Sweden, and we are pursuing a number of significant
opportunities in the region.
In the Middle East, our long-standing relationships at
government and company levels, continued regional instability and
the nature of our long-term contracts, mean we expect defence and
security to remain a priority. The renewal of certain existing
long-term support contracts is tracking in line with expectations
and we continue to progress a number of opportunities with existing
customers.
The civil aerospace market accounts for around 3% of Group
sales. COVID-19 has significantly impacted this market, and a
recovery to 2019 levels is likely to be a number of years away. We
are seeing some signs of recovery and this remains an important
franchise for us in which we have leading capabilities in flight
and engine controls across new, developing and more mature
programmes with capabilities transferable from defence air
platforms.
Balance sheet and capital allocation
The Group recognises the importance to investors of a clear and
consistent capital allocation policy. The Group's balance sheet is
managed conservatively in line with its policy to retain its
investment grade credit rating and to ensure operating flexibility.
The Group expects to continue to meet its pension obligations,
invest in research and technology and other organic investment
opportunities, and plans to pay dividends in line with its policy
of long-term sustainable cover of around two times underlying
earnings.
Consistent with this approach, the Group initiated a share
repurchase programme of up to GBP500m on 30 July which was
completed in February 2022. 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 long-term value than repurchasing the Group's
own shares.
Post-employment benefit schemes
The Group's share of the pre-tax accounting net post-employment
benefits deficit improved to a year end position of GBP2.1bn from
GBP4.5bn, driven by higher discount rates and strong asset
performance.
Under the funding deficit recovery plan agreed in February 2020
all scheduled lump sum Company contributions were made in 2020.
Board and Executive Committee changes
Dame Carolyn Fairbairn, Dr Ewan Kirk and Crystal E. Ashby were
appointed to the Board as non-executive directors of the Company on
1 March, 1 June and 1 September 2021 respectively.
At the end of 2021 Cliff Robson was appointed Group Managing
Director of the Air sector, replacing Chris Boardman who
retired.
Following the formation of the Group's new Digital Intelligence
business with effect from 2022, the following changes were made to
the Executive Committee. David Armstrong was appointed Group
Managing Director, Digital Intelligence. Karin Hoeing was appointed
Group ESG, Culture & Business Transformation Director, and was
succeeded as Group Human Resources Director by Tania Gandamihardja.
Gabby Costigan was appointed Group Managing Director, Business
Development. She was succeeded as Chief Executive, BAE Systems
Australia by Ben Hudson. In turn, Julian Cracknell was appointed
Chief Technology & Information Officer. Simon Barnes, Managing
Director, BAE Systems Saudi Arabia, also joined the Executive
Committee.
Summary
The fundamentals of our business remain strong, and the strategy
of the Group is unchanged. Our business benefits from a large order
backlog, with established positions on long-term programmes in the
US, UK, Saudi Arabia and Australia. Relationships with, and support
from, our customers remain strong, with defence and security
continuing to be a priority for governments in our key markets,
with continued demand for our capabilities. This backdrop, together
with our focus on programme execution, positions us to grow our
sales profitably and increase cash conversion in the coming years.
We are evolving the business to have an appropriate sustainability
agenda embedded at its core, with a constant focus on operational
performance and value creation. As demonstrated this year, higher
cash generation gives us increased strategic flexibility focused on
technology and aligned to our customers' priorities, and enables us
to deliver increased cash returns to shareholders.
Dividends
The Board has recommended a final dividend of 15.2p for a total
of 25.1p for the full year. Subject to shareholder approval at the
May 2022 Annual General Meeting, the dividend will be paid on 1
June 2022 to holders of Ordinary shares registered on 22 April
2022.
Financial glossary
We monitor the underlying financial performance of the Group
using alternative performance measures (APMs). These measures are
not defined in International Financial Reporting Standards (IFRS)
and, therefore, are considered to be non-GAAP (Generally Accepted
Accounting Principles) measures. Accordingly, the relevant IFRS
measures are also presented where appropriate.
The Group uses these APMs as a mechanism to support year-on-year
business performance and cash generation comparisons, and to
enhance management's planning and decision making on the allocation
of resources. The APMs are also used to provide information in line
with the expectations of investors, and when setting guidance on
expected future business performance. The Group presents these
measures to the users to enhance their understanding of how the
business has performed in the year, and do not consider them to be
more important than, or superior to, their equivalent IFRS
measures.
Measure Definition Purpose
------------------- ---------------------------------------- ---------------------------
Financial performance measures as defined by the Group
Sales Revenue plus the Group's share Enables management to
of revenue of equity accounted monitor the revenue of
investments, excluding subsidiaries' both the Group's own
revenue from equity accounted subsidiaries as well
investments. as its strategically
important equity accounted
investments, to ensure
programme performance
is understood and in
line with expectations.
------------------- ---------------------------------------- ---------------------------
Underlying EBIT(1) Operating profit excluding amortisation Provides a measure of
of programme, customer-related operating profitability,
and other intangible assets, excluding one-off events,
impairment of intangible assets, to enable management
finance costs and taxation expense to monitor the performance
of equity accounted investments of recurring operations
(EBIT), and non-recurring items(2) over time, and which
. The exclusion of amortisation is comparable across
of acquisition-related intangible the Group.
assets is to allow consistent
comparability internally and
externally between our businesses,
regardless of whether they have
been grown organically or via
acquisition.
------------------- ---------------------------------------- ---------------------------
Return on sales Underlying EBIT as a percentage Provides a measure of
of sales. operating profitability,
excluding one-off events,
to enable management
to monitor the performance
of recurring operations
over time, and which
is comparable across
the Group.
------------------- ---------------------------------------- ---------------------------
Underlying earnings Profit for the year attributable Provides a measure of
per share(1) to shareholders, excluding post-tax the Group's underlying
impact of amortisation of programme, performance, which enables
customer-related and other intangible management to compare
assets, impairment of intangible the profitability of
assets, non-cash finance movements the Group's recurring
on pensions and financial derivatives, operations over time.
and non-recurring items(2) attributable
to shareholders, being underlying
earnings, divided by number of
shares as defined for Basic EPS
in accordance with IAS 33 Earnings
per Share.
------------------- ---------------------------------------- ---------------------------
Underlying interest Net finance costs for the Group Provides a measure of
and its share of equity accounted finance costs associated
investments, excluding net interest with the operational
expense on post-employment benefit borrowings of the Group
obligations and fair value and that is comparable over
foreign exchange adjustments time.
on financial instruments and
investments.
------------------- ---------------------------------------- ---------------------------
Measure Definition Purpose
-------------------- ----------------------------------------- --------------------------------
Underlying effective Taxation expense for the Group Provides a measure of
tax rate and its share of equity accounted taxation for the Group,
investments, excluding any one-off excluding one-off items,
tax benefit/expense, as a percentage that is comparable over
of adjusted profit before taxation, time.
being Profit before tax plus
taxation expense of equity accounted
investments, adjusted for non--recurring
items(2) .
-------------------- ----------------------------------------- --------------------------------
Operating business Net cash flow from operating Provides a measure of
cash flow activities excluding taxation cash generated by the
and including net capital expenditure Group's operations, to
and lease principal amounts, service debt and meet
financial investment and dividends tax obligations, and
from equity accounted investments. in turn available for
use in line with the
Group's capital allocation
policy.
-------------------- ----------------------------------------- --------------------------------
Free cash flow Operating business cash flow Provides a measure of
less interest paid (net) and cash generated by the
taxation. Group's operations after
servicing debt and tax
obligations, available
for use in line with
the Group's capital allocation
policy.
-------------------- ----------------------------------------- --------------------------------
Net debt (excluding Cash and cash equivalents, less Allows management to
lease liabilities) loans and overdrafts (including monitor indebtedness
debt-related derivative financial of the Group, to ensure
instruments). Net debt does not the Group's capital structure
include lease liabilities. is appropriate and capital
allocation policy decisions
are suitably informed.
-------------------- ----------------------------------------- --------------------------------
Order intake Funded orders received from customers Allows management to
including the Group's share of monitor the order intake
order intake of equity accounted of the Group's own subsidiaries
investments. as well as its strategically
important equity accounted
investments, providing
insight into future years'
sales performance.
-------------------- ----------------------------------------- --------------------------------
Order backlog Funded and unfunded unexecuted Supports future years'
customer orders including the sales performance of
Group's share of order backlog subsidiaries and equity
of equity accounted investments. accounted investments.
Unfunded orders include the elements
of US multi-year contracts for
which funding has not been authorised
by the customer.
-------------------- ----------------------------------------- --------------------------------
1. With effect from 2021, the Group adopted the underlying EBIT profitability
measure, to include charges relating to software and development intangible
amortisation, in place of the previously reported underlying EBITA
measure, as it reflects a better measure of underlying profitability,
by including amortisation of software and development intangibles as
these charges are viewed as a recurring operational cost for the business.
Underlying earnings per share has also been recalculated to ensure
consistency with the updated operational profitability measure. The
underlying performance for 2020 of segments and the Group has been
re-presented on this new basis.
2. Items that are not relevant to an understanding of the Group's underlying
performance (see page 15).
Measure Definition
----------------------- ----------------------------------------------------------
Financial performance measures derived from IFRS
Revenue Income derived from the provision of goods and services
by the Company and its subsidiary undertakings.
--------------------- ------------------------------------------------------------
Operating profit Profit for the year before finance costs and taxation
expense. This measure includes finance costs and taxation
expense of equity accounted investments.
--------------------- ------------------------------------------------------------
Return on revenue Operating profit as a percentage of revenue.
--------------------- ------------------------------------------------------------
Basic earnings Basic earnings per share in accordance with IAS 33
per share Earnings per Share.
--------------------- ------------------------------------------------------------
Net cash flow from Net cash flow from operating activities in accordance
operating activities with IAS 7 Statement of Cash Flows.
--------------------- ------------------------------------------------------------
Order book The transaction price allocated to unsatisfied and
partially satisfied performance obligations as defined
by IFRS 15 Revenue from Contracts with Customers.
--------------------- ------------------------------------------------------------
Net post-employment Net IAS 19 Employee Benefits deficit, excluding amounts
benefits deficit allocated to equity accounted investments.
--------------------- ------------------------------------------------------------
Dividend per share Interim dividends paid and final dividend proposed
per share.
--------------------- ------------------------------------------------------------
Income statement summary
2021 2020
GBPm GBPm
---------------------------------------------------- ------- -------
Financial performance measures as defined by the
Group(1)
Sales 21,310 20,862
---------------------------------------------------- ------- -------
Underlying EBIT 2,205 2,037
---------------------------------------------------- ------- -------
Return on sales 10.3% 9.8%
---------------------------------------------------- ------- -------
Financial performance measures derived from IFRS(2) GBPm GBPm
Revenue 19,521 19,277
---------------------------------------------------- ------- -------
Operating profit 2,389 1,930
---------------------------------------------------- ------- -------
Return on revenue 12.2% 10.0%
---------------------------------------------------- ------- -------
Reconciliation of sales to revenue GBPm GBPm
---------------------------------------------------- ------- -------
Sales 21,310 20,862
Deduct Group's share of revenue of equity accounted
investments (2,979) (2,652)
Add Subsidiaries' revenue from equity accounted
investments 1,190 1,067
---------------------------------------------------- ------- -------
Revenue 19,521 19,277
---------------------------------------------------- ------- -------
Reconciliation of underlying EBIT to operating
profit GBPm GBPm
---------------------------------------------------- ------- -------
Underlying EBIT 2,205 2,037
Non-recurring items 350 19
Amortisation of programme, customer-related and
other intangible assets (86) (42)
Impairment of intangible assets (15) (4)
Financial expense of equity accounted investments (27) (32)
Taxation expense of equity accounted investments (38) (48)
---------------------------------------------------- ------- -------
Operating profit 2,389 1,930
Net finance costs (279) (334)
Taxation expense (198) (225)
---------------------------------------------------- ------- -------
Profit for the year 1,912 1,371
---------------------------------------------------- ------- -------
Underlying interest expense (241) (255)
Net interest expense on post-employment benefit
obligations (67) (70)
Fair value and foreign exchange adjustments on
financial instruments and investments 2 (41)
---------------------------------------------------- ------- -------
Net finance costs (including equity accounted
investments) (306) (366)
---------------------------------------------------- ------- -------
Exchange rates 2021 2020
--------------- ----- -----
Average
GBP/$ 1.376 1.283
--------------- ----- -----
GBP/EUR 1.163 1.125
--------------- ----- -----
GBP/A$ 1.832 1.862
--------------- ----- -----
Year end
GBP/$ 1.354 1.367
------------------------------------------------ ----- -----
GBP/EUR 1.191 1.117
------------------------------------------------ ----- -----
GBP/A$ 1.863 1.770
------------------------------------------------ ----- -----
Sensitivity analysis GBPm
------------------------------------------------ -----
Estimated impact on sales of a ten cent movement
in the average exchange rate
$ 625
------------------------------------------------ -----
EUR 115
------------------------------------------------ -----
A$ 45
------------------------------------------------ -----
1. The purposes and definitions of non-GAAP measure are provided
in the Financial glossary on page 12.
2. International Financial Reporting Standards.
Sales increased by GBP0.4bn to GBP21.3bn (2020 GBP20.9bn), a 5%
increase on a constant currency basis(1) .
Underlying EBIT increased to GBP2,205m (2020 GBP2,037m), giving
a return on sales of 10.3% (2020 9.8%). Excluding the impact of
exchange translation, the increase was 13%.
Revenue increased by GBP0.2bn to GBP19.5bn (2020 GBP19.3bn).
Operating profit increased by GBP459m to GBP2,389m (2020
GBP1,930m).
Non-recurring items in 2021 reflect a gain of GBP350m,
comprising a gain in HQ on the sale of the Filton and Broughton
sites of GBP182m, gains on disposal of Advanced Electronics Company
in the Air sector (GBP132m, of which GBP63m is attributable to
non-controlling interests) and on disposal of a business in our
Electronic Systems segment (GBP26m), and a net GBP10m gain relating
to historical and current year acquisitions. The credit of GBP19m
in 2020 comprised a settlement gain on a US pension annuity buy-out
of GBP64m, offset by charges relating to acquisitions and disposals
of GBP38m and a Guaranteed Minimum Pension equalisation charge of
GBP7m.
Amortisation of programme, customer-related and other intangible
assets is GBP86m (2020 GBP42m), the increase being driven by
amortisation charges in the Electronic Systems businesses acquired
during 2020 .
Impairment of intangible assets in 2021 is GBP15m (2020
GBP4m).
Net finance costs , including equity accounted investments, were
GBP306m (2020 GBP366m). The underlying interest charge, excluding
pension accounting, and fair value and foreign exchange adjustments
on financial instruments and investments was GBP241m (2020
GBP255m). Net interest expense on the Group's pension deficit was
GBP67m (2020 GBP70m).
Taxation expense , including equity accounted investments, of
GBP236m reflects the Group's underlying effective tax rate for the
year of 18%, plus the tax charge on non-recurring items, less a
one-off tax benefit of GBP94m in respect of agreements reached
regarding the exposure arising from the April 2019 European
Commission decision regarding the UK's Controlled Foreign Company
regime and the impact of the UK tax rate adjustment (see note 4).
The 2020 charge of GBP273m reflected the Group's underlying
effective tax rate for the year of 17%.
The calculation of the underlying effective tax rate is shown in
note 4 on page 48.
1. Current year compared with prior year translated at current
year exchange rates.
Earnings per share
2021 2020
--------------------------------------------------------- --------- ---------
Financial performance measures as defined by the
Group(1)
Underlying earnings (excluding the 2021 one-off
tax benefit) GBP1,523m GBP1,414m
--------------------------------------------------------- --------- ---------
Underlying earnings per share (excluding the 2021
one-off tax benefit) 47.8p 44.3p
--------------------------------------------------------- --------- ---------
Underlying earnings (including the 2021 one-off
tax benefit) GBP1,617m GBP1,414m
--------------------------------------------------------- --------- ---------
Underlying earnings per share (including the 2021
one-off tax benefit) 50.7p 44.3p
--------------------------------------------------------- --------- ---------
Financial performance measures derived from IFRS(2)
Profit for the year attributable to equity shareholders GBP1,758m GBP1,299m
--------------------------------------------------------- --------- ---------
Basic earnings per share 55.2p 40.7p
--------------------------------------------------------- --------- ---------
Reconciliation of underlying EBIT to underlying
earnings GBPm GBPm
--------------------------------------------------------- --------- ---------
Underlying EBIT 2,205 2,037
Underlying interest expense (241) (255)
--------------------------------------------------------- --------- ---------
1,964 1,782
--------------------------------------------------------- --------- ---------
Taxation expense (at the underlying effective
tax rate, excluding the 2021 one-off tax benefit) (350) (296)
Non--controlling interests (91) (72)
--------------------------------------------------------- --------- ---------
Underlying earnings (excluding the 2021 one-off
tax benefit) 1,523 1,414
--------------------------------------------------------- --------- ---------
One-off tax benefit 94 -
--------------------------------------------------------- --------- ---------
Underlying earnings (including the 2021 one-off
tax benefit) 1,617 1,414
--------------------------------------------------------- --------- ---------
Reconciliation of underlying earnings to profit
for the year
attributable to equity shareholders GBPm GBPm
--------------------------------------------------------- --------- ---------
Underlying earnings (excluding the 2021 one-off
tax benefit) 1,523 1,414
Non-recurring items, post tax 279 15
Amortisation of programme, customer-related and
other intangible assets, and impairment of intangibles,
post tax (84) (38)
Net interest expense on post-employment benefit
obligations, post tax (55) (58)
Fair value and foreign exchange adjustments on
financial instruments and investments, post tax 1 (34)
One-off tax benefit (2021) 94 -
Profit for the year attributable to equity shareholders 1,758 1,299
Non-controlling interests 154 72
--------------------------------------------------------- --------- ---------
Profit for the year 1,912 1,371
--------------------------------------------------------- --------- ---------
Underlying earnings per share for the year (excluding the
one-off tax benefit) increased by 12%, excluding the impact of
exchange translation, to 47.8p (2020 44.3p).
Basic earnings per share was 55.2p (2020 40.7p).
Orders
Financial performance measures as defined by the
Group(1) 2021 2020
------------------------------------------------ ---------- ----------
Order intake(3) GBP21,458m GBP20,915m
Order backlog(3) GBP44.0bn GBP45.2bn
------------------------------------------------ ---------- ----------
Financial performance measures derived from IFRS(2)
Order book GBP35.5bn GBP36.3bn
---------- --------- ---------
Order intake (3) increased by GBP543m to GBP21,458m (2020
GBP20,915m). Our US-managed businesses had a book-to-bill ratio(4)
of more than one.
Order backlog (3) decreased by GBP1.2bn to GBP44.0bn.
Order book decreased by GBP0.8bn to GBP35.5bn.
1. The purposes and definitions of non-GAAP measure are provided
in the Financial glossary on page 12.
2. International Financial Reporting Standards.
3. Including share of equity accounted investments.
4. Ratio of Order intake to Sales.
Cash flow
2021 2020
GBPm GBPm
----------------------------------------------------- ------- -------
Financial performance measures as defined by the
Group(1)
Free cash flow 1,864 367
----------------------------------------------------- ------- -------
Financial performance measures derived from IFRS(2) GBPm GBPm
Net cash flow from operating activities 2,447 1,166
----------------------------------------------------- ------- -------
Reconciliation from free cash flow to net cash
flow from operating activities GBPm GBPm
----------------------------------------------------- ------- -------
Free cash flow 1,864 367
Add back Interest paid, net of interest received 224 208
Add back Taxation 234 251
----------------------------------------------------- ------- -------
Operating business cash flow 2,322 826
----------------------------------------------------- ------- -------
Add back Net capital expenditure and financial
investment 209 392
Add back Principal element of lease payments and
receipts 207 226
Deduct Dividends received from equity accounted
investments (57) (27)
Deduct Taxation (234) (251)
----------------------------------------------------- ------- -------
Net cash flow from operating activities 2,447 1,166
----------------------------------------------------- ------- -------
Net capital expenditure and financial investment (209) (392)
Principal element of finance lease receipts 10 10
Dividends received from equity accounted investments 57 27
Interest received 23 19
Acquisitions and disposals 185 (1,701)
----------------------------------------------------- ------- -------
Net cash flow from investing activities 66 (2,037)
----------------------------------------------------- ------- -------
Interest paid (247) (227)
Equity dividends paid (777) (746)
Purchase of own shares (368) -
Partial disposal of shareholding in subsidiary
undertaking 28 27
Dividends paid to non-controlling interests (202) (19)
Principal element of lease payments (217) (236)
Cash flow from derivative financial instruments
(excluding cash flow hedges) (88) 16
Movement in cash collateral (18) (2)
Net cash flow from loans (367) 2,160
----------------------------------------------------- ------- -------
Net cash flow from financing activities (2,256) 973
----------------------------------------------------- ------- -------
Net increase in cash and cash equivalents 257 102
Add back/(deduct) Net cash flow from loans 367 (2,160)
Foreign exchange translation (50) 220
Other non-cash movements (16) (137)
Decrease/(increase) in net debt (excluding lease
liabilities) 558 (1,975)
Opening net debt (excluding lease liabilities) (2,718) (743)
----------------------------------------------------- ------- -------
Net debt (excluding lease liabilities) (2,160) (2,718)
----------------------------------------------------- ------- -------
1. The purposes and definitions of non-GAAP measure are provided
in the Financial glossary on page 12.
2. International Financial Reporting Standards.
Free cash flow was GBP1,864m (2020 GBP367m, including the impact
of the Group's GBP1bn contribution into the UK pension scheme). The
strong inflow in the year was driven by our sharp focus on
liquidity, good operational performance and improved working
capital management including some accelerated collections.
Net cash inflow from operating activities was GBP2,447m (2020
GBP1,166m, including the effect of the GBP1bn contribution to the
UK pension scheme).
Taxation payments were GBP234m (2020 GBP251m).
Net capital expenditure and financial investment was GBP209m
(2020 GBP392m) which includes the impact of an inflow from the
proceeds of the site sales of GBP271m.
Dividends received from equity accounted investments amounted to
GBP57m (2020 GBP27m).
Interest received was GBP23m (2020 GBP19m).
Cash flows in respect of acquisitions, disposals and held for
sale assets comprises a net inflow of GBP185m, primarily in
relation to the divestment of the Advanced Electronics Company. The
cash outflows in 2020 in respect of acquisitions, disposals, held
for sale assets and the partial disposal of shareholdings in
subsidiary undertakings primarily represent the two US acquisitions
and that of Techmodal, with an inflow of GBP27m from the reduction
in the Group's shareholding in Overhaul and Maintenance Company
(OMC) .
Interest paid was GBP247m (2020 GBP227m).
Equity dividends paid in 2021 represents the 2020 final dividend
(GBP461m) and the 2021 interim dividend (GBP316m).
The share buyback saw an outflow of GBP368m in the year. The
full GBP500m programme completed in February 2022.
Dividends paid to non-controlling interests were GBP202m (2020
GBP19m), primarily reflecting payments made by our partially-owned
subsidiaries in Saudi Arabia.
There was a cash outflow from derivative financial instruments
of GBP88m (2020 GBP16m inflow), arising from rolling hedges
relating to balances within the Group's subsidiaries and equity
accounted investments .
Foreign exchange translation primarily arises in respect of the
Group's US dollar-denominated borrowing.
Net debt
2021 2020
Components of net debt (excluding lease liabilities) GBPm GBPm
----------------------------------------------------- ------- -------
Cash and cash equivalents 2,917 2,768
Debt-related derivative financial instruments (net) (16) (62)
Loans - non-current (4,604) (4,957)
Loans and overdrafts - current (457) (467)
----------------------------------------------------- ------- -------
Net debt (excluding lease liabilities) (2,160) (2,718)
----------------------------------------------------- ------- -------
The Group's net debt (excluding lease liabilities) at 31
December 2021 is GBP2,160m, a net decrease of GBP558m from the
position at the start of the year. This is primarily a result of
the strong Free cash flow performance, partially offset by
dividends paid and the share buyback .
Cash and cash equivalents of GBP2,917m (2020 GBP2,768m) are held
primarily for the repayment of debt securities, pension deficit
funding when required, payment of the 2021 final dividend, funding
of the completion of the share buyback programme announced in July
2021 and management of working capital.
Accounting policies
Changes in accounting policies
No new or amended standards which became applicable for the year
ending 31 December 2021 had a material impact on the Group or
required the Group to change its accounting policies.
Segmental review
The Group reports its performance through six reporting
segments.
Year ended 31 December 2021
-------------------------------------------------------------------------------------------------------------
As defined by the Group Derived from IFRS(1)
------------------------------------------------------------ -----------------------------------------------
Net
cash
Operating flow
Return business Return from
Underlying on cash Order Order Operating on operating Order
Sales EBIT sales flow Intake(2) Backlog(2) Revenue profit revenue activities book
GBPm GBPm % GBPm GBPm GBPbn GBPm GBPm % GBPm GBPbn
------------- ------ ---------- ------ --------- --------- ---------- ------- --------- ------- ---------- ------
Electronic
Systems 4,491 766 17.1 774 4,923 7.2 4,491 715 15.9 951 5.7
Platforms &
Services
(US) 3,395 259 7.6 287 3,236 5.6 3,318 252 7.6 351 5.3
Air 8,321 856 10.3 628 7,186 20.3 6,913 930 13.5 743 14.7
Maritime 3,416 288 8.4 321 4,336 9.9 3,340 289 8.7 457 9.4
Cyber &
Intelligence 1,752 156 8.9 173 1,817 1.6 1,752 152 8.7 202 1.0
HQ(3) 307 (120) 139 320 - 36 51 (23) -
Deduct
Intra-group (372) (360) (0.6) (329) (0.6)
Deduct
Taxation(4) (234)
------------- ------ ---------- ------ --------- --------- ---------- ------- --------- ------- ---------- ------
Total 21,310 2,205 10.3 2,322(5) 21,458 44.0 19,521 2,389 12.2 2,447 35.5
------------- ------ ---------- ------ --------- --------- ---------- ------- --------- ------- ---------- ------
1. International Financial Reporting Standards.
2. Including share of equity accounted investments.
3. HQ comprises the Group's head office activities, together
with a 49% interest in Air Astana.
4. Taxation is managed on a Group-wide basis.
5. At a Group level, the key cash flow metric is Free cash flow
(see Financial glossary on page 12). Free cash flow was GBP1,864m
(2020 GBP367m).
Segmental performance: Electronic Systems
Electronic Systems, with 16,400 employees(1) , comprises the US-
and UK -- based electronics activities, including electronic
warfare systems, navigation systems, electro-optical sensors,
military and commercial digital engine and flight controls,
precision guidance and seeker solutions, next-generation military
communications systems and data links, persistent surveillance
capabilities, space electronics and electric drive propulsion
systems.
Operational and strategic key points
- Cumulatively more than 1,000 electronic warfare systems delivered on F-35 programme.
- Limited Interim Missile Warning System indefinite delivery,
indefinite quantity sustainment and support contract awarded worth
$872m (GBP644m) over ten years.
- EPAWSS testing underway on F-15E and F-15EX aircraft.
- Contract received from Defense Logistics Agency valued at more
than $640m (GBP473m) to deliver Increment 1 M-Code devices.
- Rising demand for low and zero emission vehicles in our Power & Propulsion Solutions business.
- Demand in our Controls & Avionics Solutions commercial
markets starting to recover from pandemic impacts.
Financial performance
Financial performance measures as Financial performance measures derived
defined by the Group(2) from IFRS(3)
2021 2020 2021 2020
------------------- --------- --------- ------------------------ --------- ---------
Sales GBP4,491m GBP4,557m Revenue GBP4,491m GBP4,557m
------------------- --------- --------- ------------------------ --------- ---------
Underlying EBIT GBP766m GBP674m Operating profit GBP715m GBP649m
------------------- --------- --------- ------------------------ --------- ---------
Return on sales 17.1% 14.8% Return on revenue 15.9% 14.2%
------------------- --------- --------- ------------------------ --------- ---------
Operating business Cash flow from operating
cash flow GBP774m GBP580m activities GBP951m GBP767m
------------------- --------- --------- ------------------------ --------- ---------
Order intake(1) GBP4,923m GBP4,722m Order book GBP5.7bn GBP5.3bn
------------------- --------- --------- ------------------------ --------- ---------
Order backlog(1) GBP7.2bn GBP6.5bn
------------------- --------- ---------
- Sales grew by 5%(4) with growth from the Electronic Combat
Solutions and Precision Strike & Sensing Solutions
businesses.
- Commercial revenues were flat as the pandemic continued to impact.
- Return on sales of 17.1% on strong operational performance and
significant contribution from 2020 acquisitions.
- Increase in operating business cash flow reflected good
working capital management and programme execution.
- Key orders secured on F-35, Precision Strike and C4ISR programmes .
Operational performance
Electronic Combat Solutions
The F-35 Lightning II programme completed deliveries for Lot 13
and has delivered a cumulative total of more than 1,000 electronic
warfare (EW) systems. We are also supporting the Block 4
modernisation efforts under
multiple contracts worth over $870m (GBP642m), and we continue to operate under a five-year
Performance-Based Logistics contract to provide EW module availability and support for the F-35 sustainment programme.
Under contract from Boeing, we continue to deliver our
next-generation electronic warfare Eagle Passive Active Warning
Survivability System to support the upgrade of the US Air Force
F-15 platform and testing on F-15E and F-15EX test aircraft at both
Eglin and Edwards Air Force bases. During 2021 BAE Systems was
awarded $210m (GBP155m) for the low-rate initial production phase ,
hardware redesign for cost reduction, obsolete
parts provisioning, and other support requirements.
We are also under contract to install the Digital Electronic
Warfare System on new and existing F-15 aircraft for multiple
international customers, including the provision of hardware and
software to support the first successful flight of the F-15QA
fighter under a Qatar Foreign Military Sale programme.
We continue to collaborate with Boeing in the pursuit of all
F-15 EW upgrade opportunities, both domestic and international.
We are providing Lots 2 and 3 of the sensor hardware/software
functionality for the Long Range Anti-Ship Missile (LRASM), and in
April we received a contract totalling $117m (GBP86m) from Lockheed
Martin for LRASM sensor production Lots 4 and 5. We are also
executing Diminishing Material Sources contracts for the
next configuration of LRASM.
Due to the sensitive nature of electronic combat systems and
technology, many of our programmes are classified. These include
our work as a world leader in electronic warfare providing next -
generation defence technologies.
Countermeasure & Electromagnetic Attack Solutions
The Compass Call programme is currently executing contracts
valued at more than $1bn (GBP0.7bn), focused on the cross-decking
of prime mission equipment to the new EC-37B aircraft while
sustaining and upgrading the existing EC-130H fleet. Integration
and test of the EC-37B mission system is ongoing, as well as a
second phase of testing to demonstrate the Small Adaptive Bank of
Electronic Resources technology on the EC-130H.
The EC-37B platform is targeted to field in 2024.
We received an indefinite delivery, indefinite quantity contract
from the US Army to provide life cycle sustainment and technical
support to the Limited Interim Missile Warning System programme.
The ten-year
contract has a ceiling value of $872m (GBP644m).
Precision Strike & Sensing Solutions
The APKWS(R) guidance kit programme is executing at full-rate
production under an indefinite delivery contract, with awards worth
over $100m (GBP74m) received in the first half. Government
qualification on the Block Upgrade Variant is complete, and the new
version is approved and on contract. The upgraded
guidance kits are now in production and will be delivered to customers starting in early 2022.
Navigation and Sensor Systems was awarded a contract valued at
more than $325m (GBP240m) from the Defense Logistics Agency to
deliver Increment 1 M-Code devices through to 2030. An additional
contract option
executed by the Defense Logistics Agency in November is valued at $316m (GBP233m).
The Terminal High Altitude Area Defense (THAAD) seeker programme
is executing at full-rate production levels, providing critical
targeting technology that helps to protect the US and its allies
from ballistic missiles. The programme is currently working to
design and manufacture next-generation THAAD infrared
seekers valued at $150m (GBP111m).
On 1 April, we completed the sale of BAE Systems Rokar
International Ltd., an international defence electronics company,
to Elbit Systems for approximately $31m (GBP22m). We continue to
work with Rokar as an important supplier under licences and other
agreements.
C4ISR Systems
We continue to progress our strategic integration of last year's
acquisition to advance our presence in the communications
marketplace, bringing together technology in communications,
cryptography, and navigation to compete and grow our portfolio in
joint all-domain command and control markets. We completed a
successful prototype demonstration implementing modular open system
architecture for the US Army's Enduring Fleet while providing a
path to support Future Vertical Lift and Ground platforms. We have
been competitively down selected for Airborne High Frequency Radio
Modernization with an anticipated award in 2022.
We successfully captured a highly competitive space technology
development programme. The team will demonstrate and qualify the
next-generation, radiation-hardened Application Specific Integrated
Circuit (ASIC) Library technology, and will develop the
infrastructure to offer ASIC design services. This win
positions us well to continue as a leading provider in the space domain.
We continue to experience steady growth in our signals
intelligence portfolio. Within our classified programmes, we had a
successful customer design review in April leading to future system
upgrades.
Controls & Avionics Solutions
We are seeing a continued uptick in airline traffic and, more
importantly, in business travel. Consequently, demand for Original
Equipment Manufacturer deliveries and aftermarket services is
showing an improvement. Long-term fundamentals remain strong and
underpin the demand for more than 40,000 new aircraft over the next
two decades. We also see a trend towards more electric aircraft,
specifically in the emerging advanced air mobility segment, for
which the business is developing energy management and power
conversion systems.
The business continues to develop the integrated flight control
electronics and remote electronic units for the new Boeing 777X
aircraft family. The flight control system is performing as
expected during flight testing, and we continue to incorporate
software updates and conduct systems verification testing.
Our engine control products, offered through FADEC International
(our joint venture with Safran Electronics & Defense) and FADEC
Alliance (a joint venture between GE Aviation and FADEC
International), continue to perform well across our entire
portfolio. The LEAP(R) FADEC family achieved a major milestone,
delivering the 10,000th unit, making it our fastest ramp-to-rate
engine control product. On the military side, the GE T901 FADEC is
under development, the T700 engine replacement for the UH-60 Black
Hawk and AH-64 Apache along
with the US Army's Future Attack Reconnaissance Aircraft.
Deliveries of the F-35 vehicle management computer and active
inceptor systems have successfully ramped up, and we are enabling
the first US Depot stand-up scheduled for 2022. Development of the
advanced vehicle
control system for the UK Dreadnought submarine programme remains on plan.
We continue to progress and mature our autonomous control
technologies through a series of successful crewed-uncrewed teaming
flight test events, including a recently successful capstone flight
demonstration event, on a US Department of Defense funded
programme. The objective of this programme is to develop
autonomous technologies and mission capabilities for US military platforms.
Power & Propulsion Solutions
Despite the impacts on travel from the pandemic, the demand for
low and zero emission vehicles is rising as air quality and climate
change ascend the global agenda. In addition to existing low
emission electric hybrid and zero emission battery electric
options, BAE Systems now offers a hydrogen fuel cell electric
propulsion system in collaboration with Plug Power, Inc.
Hybrid bus procurements continue in cities such as Namur,
Belgium and Boston, Massachusetts, in the US, and we anticipate
large procurements in Philadelphia, Pennsylvania and Mississauga in
Canada. Bus manufacturer Nova Bus has successfully integrated our
Gen3 electric drive system to power its new LFSe+ battery electric
buses and has sold these electric buses into ten transit
properties, including San Francisco Municipal Transportation
Authority, which will begin to transition its fleet from BAE
Systems - supplied electric
hybrid systems to our Gen3 fully electric drive system.
We are expanding our clean energy footprint in the maritime
domain, receiving multiple contracts to deliver low and zero
emission passenger transport and research vessels. We are taking
hydrogen fuel cells to the waterways, with Switch Maritime's Sea
Change undergoing sea trials using our electric drive propulsion
system. In addition, we secured an opportunity to collaborate with
other maritime industry leaders to demonstrate our proven maritime
propulsion solutions for use on the River Thames in London. In the
air domain, we continue to progress technologies that will enable
lighter weight, cost-competitive energy storage solutions for
hybrid engines in aircraft.
Looking forward
Forward-looking information for the Electronic Systems reporting
segment is provided on page 37.
1. Including share of equity accounted investments.
2. For alternative performance measure definitions see Financial
glossary on page 12.
3. International Financial Reporting Standards.
4. Constant currency basis.
Segmental performance: Platforms & Services (US)
Platforms & Services (US), with 12,300 employees(1) , has
operations in the US, UK and Sweden. It manufactures and upgrades
combat vehicles, weapons and munitions, and delivers services and
sustainment activities, including naval ship repair, and the
management and operation of government-owned munitions
facilities.
Operational and strategic key points
- Selected to participate in the design concept phase for the US
Army's Optionally Manned Fighting Vehicle programme.
- Consistent deliveries of the M109A7 Self-Propelled Howitzer
enabled the programme to surpass 350 cumulative system deliveries
.
- Received a $600m (GBP443m) sustainment and technical support
services contract for Armored Multi-Purpose Vehicle, and AMPV
deliveries continued against the rebaselined customer schedule
.
- Amphibious Combat Vehicle deliveries against LRIP and design
development have begun on mission variants .
- Contract received worth approximately $200m (GBP148m) from Sweden for 127 BvS10s.
- Contract received exceeding $500m (GBP369m) for mid-life upgrades of Dutch CV90s.
- US Ship Repair was significantly impacted by the pandemic, but
has seen some recent signs of recovery .
- Ordnance Systems awarded additional contracts for modernisation projects at Holston.
Financial performance
Financial performance measures as Financial performance measures derived
defined by the Group(2) from IFRS(3)
2021 2020 2021 2020
------------------- --------- --------- ------------------------ --------- ---------
Sales GBP3,395m GBP3,503m Revenue GBP3,318m GBP3,399m
------------------- --------- --------- ------------------------ --------- ---------
Underlying EBIT GBP259m GBP190m Operating profit GBP252m GBP183m
------------------- --------- --------- ------------------------ --------- ---------
Return on sales 7.6% 5.4% Return on revenue 7.6% 5.4%
------------------- --------- --------- ------------------------ --------- ---------
Operating business Cash flow from operating
cash flow GBP287m GBP382m activities GBP351m GBP458m
------------------- --------- --------- ------------------------ --------- ---------
Order intake(1) GBP3,236m GBP4,137m Order book GBP5.3bn GBP5.6bn
------------------- --------- --------- ------------------------ --------- ---------
Order backlog(1) GBP5.6bn GBP6.1bn
------------------- --------- ---------
- Sales grew by 3%(4) on higher combat vehicle deliveries and
ramp up of CV90 upgrade programmes.
- Return on sales grew by more than 200bps with continued
recovery and operational improvement in Combat Mission Systems and
Ship Repair.
- Operating business cash flow was lower as 2020 benefited from
pandemic-related customer actions and advances on exports.
- Multiple combat vehicle programme orders of $2.7bn (GBP2.0bn)
and almost $700m (GBP517m) of new work in Ship Repair.
Operational performance
Combat Mission Systems
Combat Mission Systems continues to make progress towards
achieving consistent production throughput, with volumes at a
heightened level across multiple programmes. Throughout the period,
the team has worked closely with customers to address
pandemic-related disruptions and schedule impacts. Investments in
facilities and new manufacturing technologies, including automation
and robotic welding, are delivering positive returns, and we look
to leverage these process improvements to benefit our performance
as we move to full rate production across a number of
platforms.
We continue to deliver Amphibious Combat Vehicles (ACVs) to the
US Marine Corps under low-rate initial production contracts
totalling approximately $600m (GBP443m) for 116 vehicles, and two
full-rate production contracts for an additional 105 vehicles at a
value of $552m (GBP408m). Design and development has begun on new
ACV mission variants to include integrating a 30mm unmanned gun
system for the ACV-30 variant and
studying reconnaissance capabilities for the ACV.
On the US Army's Armored Multi-Purpose Vehicle (AMPV) programme,
we are working under production contracts worth $1.3bn (GBP1.0bn).
Deliveries of the five variants continued this year according to
the rebaselined customer schedule, which was contractually agreed
with the Army in December. In July we also received a
contract worth up to $600m (GBP443m) for AMPV sustainment and technical support services.
Progress continues on the M109A7 programme under cumulative low rate initial production totalling approximately $1.5bn (GBP1.2bn) for 204 vehicle sets. We received a $339m (GBP250m) full-rate production contract for 48 vehicle sets in 2020. In the second half of the year, we received early order material awards totalling $97m (GBP72m) to support further production.
Work to upgrade Bradley vehicles to the A4 configuration
continues. Following several modifications, the
contract is valued at $809m (GBP597m) for 459 vehicles and spares.
We are executing on a $32m (GBP24m) prototype contract received
last year from the US Army's Rapid Capabilities and Critical
Technologies Office to integrate a hybrid-electric drive system
onto Bradley Fighting Vehicles.
We continue to produce and sustain the US Army's M88 recovery
vehicles under previously awarded contracts, upgrading 43 vehicles
from the M88A1 to the M88A2 HERCULES configuration, and developing
the next-generation M88A3 configuration to restore single-vehicle
recovery capability. In December we received a $79m (GBP58m)
contract to deliver the first M88A3 prototypes.
In July, we were selected to participate in the design concept
phase for the US Army's Optionally Manned
Fighting Vehicle programme.
We are producing Mk 41 Vertical Launching System (VLS) missile
canisters for the US Navy under awards totalling $350m (GBP258m),
with a total potential value of more than $695m (GBP513m) if all
options are exercised. In April, we successfully competed for a
$164m (GBP121m), five-year contract to remain the Navy's
design agent for missile canisters and the mechanical portion of the VLS.
Under 2019 and 2020 contract modifications, we are working to
deliver Mk45 Mod 4 gun systems to the US Navy. In October, we
received a $26m (GBP19m) contract to provide 57mm Mk110 naval gun
systems for the Navy's new Constellation class frigates and Coast
Guard Argus class patrol cutters. In December, we received a $24m
(GBP18m) contract to deliver Mk38 Mod 3 25mm machine gun systems
designed to counter unmanned aerial gun systems to the Navy.
Deliveries continue on a contract to provide 37 Virginia Payload
Module tubes for the US Navy's Block V Virginia Class
submarines.
Ordnance Systems
We continue to operate and modernise the US Army's Radford and
Holston ammunition plants under a total of $1.7bn (GBP1.3bn) in
modernisation contracts. The Army has awarded a two-year extension
for Radford operations as we make progress towards a cumulative
five-year extension for Radford and a competition for the operation
of Holston.
At Holston, modernisation activities continue, including the
construction of a Weak Acetic Acid Recovery Plant, multiple
contracts for a natural gas-fired steam facility, a wastewater
management facility, and the design, construction and commissioning
of new production facilities. Contracts totalling $372m GBP(275)m
were awarded in the year for energetics facilities at Holston in
continuation of the Army's $1bn (GBP0.7bn) investment to increase
production capabilities.
At Radford, construction of a modern nitrocellulose facility has
been completed, and the facility is in the commissioning and
product qualification phase.
US Ship Repair
The US Ship Repair business continues to conduct modernisation
and maintenance activities for the US Navy's non-nuclear fleet. Our
shipyards and programmes were significantly impacted by the
COVID-19 pandemic, though recent trends show a lessening of those
impacts, coupled with higher than usual levels of customer-added
work to existing contracts. Our investments in operational
excellence and additional resources are delivering benefits as we
address several challenged ship modernisation programmes and
work
to recover from pandemic and other operational disruptions.
During the year, we received contracts with a cumulative value
of $651m (GBP481m) for maintenance and modernisation, including on
the USS Detroit, USS Minneapolis-St. Paul, USS St. Louis and USS
Winston S. Churchill in our Jacksonville yard; the USS Makin
Island, USS Manchester, USS Russell and USS San Diego in our San
Diego shipyard; and the USS Mitscher and post-construction work on
three LPD 17 class ships, starting with
USS Fort Lauderdale in our Norfolk shipyard.
BAE Systems Hägglunds
We are executing on a contract with the Netherlands to upgrade
and extend the life of its CV9035 fleet,
including the integration of Elbit Systems' Iron Fist Active Protection System and an anti-tank guided-missile system. Under a 2020 contract to convert the Dutch fleet of CV90s to rubber band track, we delivered the first vehicle on time, cost and quality in 2021. A new contract exceeding $500m (GBP369m)
for mid-life upgrades was received in 2021.
Work is progressing to refurbish the Swedish CV90 fleet, and
deliveries of 40 Mjölner mortar systems
were finalised on time, at cost and quality.
Under a 2020 contract, we are extending the expected life of 186
Swiss Army CV90s to 2040. Norway awarded us a contract exceeding
$50m (GBP37m) in February for an additional 20 vehicles. We
continue to pursue the
Czech Republic's procurement for new fighting vehicles.
We received a contract worth approximately $200m (GBP148m) from
Sweden for 127 BvS10s. Our Beowulf unarmoured variant was selected
along with a competitor to participate in trials this year for the
US
Army's Cold Weather All-Terrain Vehicle programme.
Additionally, we received a contract from the French Army to
sustain and maintain readiness of its BvS10 fleet.
BAE Systems Bofors
We continue to deliver on Swedish and US Army contracts for
155mm BONUS ammunition, including a third order in October. The 24
additional ARCHER systems for Sweden are nearing completion, and
ARCHER successfully demonstrated its capabilities during a US Army
evaluation.
We are under multiple export contracts to deliver 40Mk4 and
57Mk3 naval gun systems, including a recent order for five 57Mk3s
and ten 40Mk4s for the UK Royal Navy's Type 31 frigates. We are
also delivering 57mm (Mk110) gun systems to the US Navy and Coast
Guard. In February, we were selected to provide 12 40Mk4s to the
Belgian and Dutch navies in a joint procurement.
Weapon Systems UK
Production of 145 M777s for the Indian Army continues under a
$542m (GBP400m) Foreign Military Sales contract. We proposed plans
to cease M777 manufacturing operations at our Barrow-in-Furness
site due to
lower projected workload.
FNSS
FNSS, our land systems joint venture based in Turkey, continues
to produce 8x8 wheeled armoured vehicles for the Royal Malaysian
Army. Production has started on medium-weight tanks for delivery to
Indonesia, and
work has started for specialist engineering vehicles for the Philippines.
Multiple contracts for the Turkish Armed Forces worth in excess
of EUR800m (GBP672m) are progressing. These include contracts for
air defence vehicles, assault amphibious vehicles, and special
purpose 8x8 and 6x6 vehicles. In September a contract extension was
signed for a further 84 anti-tank vehicles in addition to the 260
already delivered or in production. Work has also started on a
programme to modernise 133 armoured
combat vehicles for the Turkish Armed Forces.
Looking forward
Forward-looking information for the Platforms & Services
(US) reporting segment is provided on page 37.
1. Including share of equity accounted investments.
2. For alternative performance measure definitions see Financial
glossary on page 12.
3. International Financial Reporting Standards.
4. Constant currency basis.
Segmental performance: Air
Air, with 29,700 employees(1) , comprises the Group's UK--based
air activities for European and International Markets, US
Programmes, and development of Future Combat Air Systems, alongside
its businesses in Saudi Arabia and Australia, together with its
37.5% interest in the European MBDA joint venture.
Operational and strategic key points
- Qatar Typhoon and Hawk programme is progressing well, with
first Qatar Typhoon flight achieved in November and deliveries on
schedule to commence in 2022 .
- F-35 rear fuselage production reached full rate levels, with
151 assemblies completed in the year .
- Production progressing to plan on the German Typhoon programme .
- Initial entry into service of the future electronically
scanned European Common Radar Solution was achieved in December
.
- Tempest next-generation Future Combat Air System programme
continues to progress well, with initial Concept & Assessment
Phase contract secured .
- Air sector continues to work closely with industry partners
and the UK government to continue to fulfil contractual support
arrangements in Saudi Arabia .
- Australia Hunter Class Frigate programme continues through
prototyping, with good engagement with the Commonwealth to agree
revised schedule for production to commence.
- MBDA won several export orders on air platforms.
Financial performance
Financial performance measures as Financial performance measures derived
defined by the Group(2) from IFRS(3)
2021 2020 2021 2020
------------------- --------- --------- ------------------------ --------- ---------
Sales GBP8,321m GBP7,910m Revenue GBP6,913m GBP6,593m
------------------- --------- --------- ------------------------ --------- ---------
Underlying EBIT GBP856m GBP909m Operating profit GBP930m GBP861m
------------------- --------- --------- ------------------------ --------- ---------
Return on sales 10.3% 11.5% Return on revenue 13.5% 13.1%
------------------- --------- --------- ------------------------ --------- ---------
Operating business Cash flow from operating
cash flow GBP628m GBP718m activities GBP743m GBP917m
------------------- --------- --------- ------------------------ --------- ---------
Order intake(1) GBP7,186m GBP6,494m Order book GBP14.7bn GBP16.5bn
------------------- --------- --------- ------------------------ --------- ---------
Order backlog(1) GBP20.3bn GBP22.5bn
------------------- --------- ---------
- Sales growth of nearly 6%(4) , driven by F-35, Typhoon support
activity, continued ramp in production on Qatar programmes,
commencement of German Typhoon programme and MBDA volumes.
- Return on sales of 10.3% delivered by good operational
performance, with increased R&D on Tempest programme and
maturity mix of projects driving the margin reduction compared to
2020.
- Operating business cash flow reflects some utilisation of
advances and timing on supplier spend.
- Orders included initial Tempest Concept & Assessment
phase, Typhoon upgrades, further F-35 awards, strong MBDA demand
and Hawk support contract renewal in Australia.
Operational performance
European and International Markets
Activity on the 24 Typhoon and nine Hawk aircraft and associated
support and training contract for the State of Qatar is progressing
well. The first five Hawk aircraft have been accepted by the
customer and entered into service at RAF Leeming, in line with the
agreement to base the Qatari Hawk aircraft in the UK. A Qatar
Typhoon aircraft completed its first flight in November, in advance
of Typhoon deliveries commencing in 2022.
Eight deliveries of major units under the Kuwait Typhoon
contract, secured by Italian Eurofighter partner Leonardo, were
completed during the year. The five remaining Kuwait major unit
deliveries are planned to be completed during 2022.
Production progresses to plan with ten front fuselages in build
on the GBP1.3bn German Air Force order for 38 aircraft to replace
its original Typhoon Tranche 1 aircraft, received at the end of
2020.
The UK Typhoon fleet continues to achieve the contracted flying
hours under its ten-year partnership arrangement and support to the
Royal Air Force's UK fleet of Hawk fast jet trainer aircraft
continues under an interim agreement. The follow-on arrangement for
the long-term Hawk availability is expected to be contracted in the
first half of 2022.
Initial entry into service of the export standard electronically
scanned European Common Radar was achieved in December with
delivery of the first two Kuwait Typhoon aircraft by Leonardo, and
this capability will be extended to Qatar in 2022. National radar
variants for the UK, German, Italian and Spanish Air Forces will
continue post completion of export standard radar development
activities. The UK continues to fund development activity for the
future UK Typhoon weapon system and sensors, as part of the Partner
Nations' commitment
to the ten-year Typhoon capability enhancement programme.
Future Combat Air System
The Tempest technology maturation programme is progressing well.
During the year, the Group secured an initial GBP250m order for
the Future Combat Air System Concept & Assessment Phase.
Working with industry partners and the Ministry of Defence, the
contract will enable development of a range of digital concepts,
embedding new tools and techniques to design, evaluate and
shape
the final design and capability requirements of Tempest.
The Defence Information business is well positioned for future
opportunities across the multi-domain,
information and digital areas identified in the UK Defence Command Paper.
The Group continues to invest in promising new and innovative
technologies for the future. Discussions are
underway with a number of customers across a range of potential services for the PHASA-35(R) solar-electric powered unmanned aircraft. Development of the platform continues with the first stratospheric
flight planned for in 2022.
US Programmes
F-35 rear fuselage manufacturing reached full rate production
during 2021 with 151 rear fuselage assemblies completed for the
contracts Lots 12, 13, 14, and 15 in line with customer
expectations. Pricing has now been agreed on Lots 15 to 17.
The global F-35 sustainment strategy continues to transition
towards multi-year service agreements. In line with this, a
five-year contract from January 2021 to December 2025 was awarded
during the year, covering the provision of manpower services in
support of key sustainment activities located in both the UK and
the US.
Saudi Arabia
In Saudi Arabia, the In-Kingdom Industrial Participation
programme continues to make good progress consistent with our
long-term strategy, as well as the Saudi Arabian government's
National Transformation Plan and Vision 2030, with examples of the
benefits of the programme including our in-Kingdom employee base
reflecting a 75% Saudisation rate, 94% of our in-Kingdom female
employees being Saudi nationals and the development of our
footprint across seven locations, resulting in demonstrable
contributions to our local communities.
The Group is reliant on the continued approval of export
licences by a number of governments in order to continue to support
programme operations in the Kingdom of Saudi Arabia. We are working
closely with industry partners and the UK government to continue to
fulfil our contractual support arrangements in the Kingdom.
BAE Systems continues to perform against the contract secured in
2018 to provide Typhoon support services to the Royal Saudi Air
Force through to the end of 2022. Through this contract, the
business also supports
the Industrialisation of Defence capabilities in Saudi Arabia.
Under the Saudi British Defence Cooperation Programme (SBDCP)
agreement, the Group discharges a number of contracts, including
support to the Tornado fleet, provision of officer and aircrew
training and technician training for the Royal Saudi Air Force, as
well as technical training, engineering and logistics services
for the Royal Saudi Naval Forces.
The current five-year SBDCP funding arrangement concluded on 31
December 2021, and agreement has been reached in principle with the
Saudi Arabian government for BAE Systems to continue to provide
services for a further five years, to 31 December 2026.
Negotiations regarding this have progressed well with initial
orders received to ensure continuity of activities. Full contract
award for these services is planned to be
concluded during 2022.
19 of the contracted 22 Hawk aircraft assembled in-Kingdom have
now been completed and formally accepted by the Royal Saudi Air
Force, including 14 during the year. The remaining aircraft are
scheduled to be
completed during the first half of 2022.
We continue to review our portfolio of interests in a number of
industrial companies in Saudi Arabia. The Saudi Arabia Military
Industries purchase of Advanced Electronics Company completed in
February 2021. We continue to explore opportunities to collaborate
with key local partners, including Saudi defence entities, to
deliver further In-Kingdom Industrial Participation, in line with
the Kingdom's National Transformation Plan and Vision 2030.
Australia
Work on the Hunter Class Frigate programme continues with
progress seen through prototyping where the first unit has
successfully validated a number of the new shipyard processes.
Design Separation and the Systems Definition Review have both been
successfully achieved during the year. Work continues to agree a
revised schedule with the Commonwealth of Australia following the
announcement of an 18-month delay that will maximise ship design
maturity before production commences.
The Jindalee Operational Radar Network programme has been
re-baselined and a revised contract agreed with the customer. The
programme is delivering against this schedule and operational
support to the systems continues to meet availability
requirements.
Hawk Mk127 Lead-In Fighter aircraft availability continues to
meet customer expectations for Australian Defence Force pilot
training. An extension of our In-Service-Support contract to 2031
was signed during the year, this included a contract for the
upgrade of 33 engines across the Australian Hawk fleet.
Sustainment activity continues at our F-35 South Pacific
Regional Airframe Depot at Williamtown, with the completion of the
first F-35 airframe maintenance events. The ANZAC frigate upgrade
programme continues to meet customer requirements.
Research and development activity in Australia has continued to
grow, with progress made supporting both the Boeing Australia Loyal
Wingman programme, which achieved its first flight in March 2021,
and the Australian Army assessment of autonomous M113 armoured
personnel carriers.
MBDA
During 2021, MBDA has continued to win domestic and export
orders, with several key bids underway. The business is well placed
to benefit from defence spending in a number of European countries
and International opportunities.
In the year, a number of new contracts were signed, including
the development of the SAMP/T NG (New Generation) ground-based air
defence system for the French and Italian customers, Aster air
defence missile Mid-Life Update for the UK and Italian customers,
additional batches of MICA NG next-generation interception, combat
and self-defence missiles for the French customer, the F-35
integration contract for Meteor/Spear and the Assessment Phase
contract for the Future Cruise/Anti-Ship Weapon (the Anglo/French
cooperation programme to replace Storm Shadow/Harpoon in the UK and
SCALP/Exocet in France). In export markets, contracts for weapons
packages in Greece, Saudi Arabia and Egypt were received.
Good progress continues on several development programmes
including MICA Next Generation, Spear Capability 3, Brimstone 3,
Teseo Mk2 Evolved, Aster Block 1 New Technology, as well as the MHT
battlefield engagement missiles to be integrated on the Tiger Mk3
attack helicopter and Enforcer for the German Armed Forces.
Looking forward
Forward-looking information for the Air reporting segment is
provided on page 37.
1. Including share of equity accounted investments.
2. For alternative performance measure definitions see Financial
glossary on page 12.
3. International Financial Reporting Standards.
4. Constant currency basis.
Segmental performance: Maritime
Maritime, with 18,200 employees(1) , comprises the Group's
UK-based maritime and land activities.
Operational and strategic key points
- Construction of first three City Class Type 26 frigates for the Royal Navy is now underway .
- Canadian Surface Combatant programme entered a key design
milestone in December, ahead of moving into the next Functional
Design phase .
- Fifth Astute Class submarine, Anson, launched in April, with
final installation and commissioning activities continuing to ready
her for scheduled exit in 2022 .
- Construction of the first two Dreadnought Class submarines continues to advance .
- Contract awarded and e arly design and concept work underway
on Royal Navy's next generation of submarines .
- Contracts worth more than GBP1bn received under UK Ministry of
Defence's Future Maritime Support Programme .
- Maritime Services provided preparation and support
capabilities to the UK's Carrier Strike Group ahead of, and during,
its first operational deployment .
- RBSL secured the Challenger 3 Main Battle Tank upgrade contract .
Financial performance
Financial performance measures as Financial performance measures derived
defined by the Group(2) from IFRS(3)
2021 2020 2021 2020
------------------- --------- --------- ------------------------ --------- ---------
Sales GBP3,416m GBP3,257m Revenue GBP3,340m GBP3,195m
------------------- --------- --------- ------------------------ --------- ---------
Underlying EBIT GBP288m GBP279m Operating profit GBP289m GBP272m
------------------- --------- --------- ------------------------ --------- ---------
Return on sales 8.4% 8.6% Return on revenue 8.7% 8.5%
------------------- --------- --------- ------------------------ --------- ---------
Operating business Cash flow from operating
cash flow GBP321m GBP243m activities GBP457m GBP317m
------------------- --------- --------- ------------------------ --------- ---------
Order intake(1) GBP4,336m GBP3,772m Order book GBP9.4bn GBP8.5bn
------------------- --------- --------- ------------------------ --------- ---------
Order backlog(1) GBP9.9bn GBP9.1bn
------------------- --------- ---------
- Sales grew by 5%, driven by continued ramp in Dreadnought and Type 26 activity.
- Return on sales of 8.4% driven by continued strong operational
performance across highly complex programmes.
- Operating business cash flow reflects good programme execution and working capital management.
- Orders included ongoing Dreadnought funding, contracts under
UK Ministry of Defence Future Maritime Support Programme, and RBSL
flow down of work on Challenger 3 Main Battle Tank programme.
Operational performance
Naval Ships
The Type 26 programme continues to progress, with construction
now underway on the first three City Class Type 26 frigates. All
units of first of class, Glasgow, have completed fabrication and
the forward and aft blocks have now been linked as one ship. The
second of class, Cardiff, now has 70% of her units in construction.
Belfast, third of class, entered the manufacturing phase at our
Govan yard in June 2021 at a ceremony led by HRH Duke of
Cambridge.
The Canadian Surface Combatant Programme entered its Preliminary
Design Review in December 2021, a key design gate ahead of moving
into the next Functional Design phase of the programme. This will
achieve a design consideration for the modifications required to
the Type 26 core design to serve Canada's needs.
In our Combat Systems business, the successful delivery of major
upgrades to the combat system capabilities on board both HMS Queen
Elizabeth and HMS Prince of Wales enabled Carrier Strike Group
tasking whilst achieving 99.5% equipment availability for the
fleet.
Submarines
Our Submarines business is a member of the Dreadnought Alliance,
working alongside the Submarine Delivery Agency (SDA) and
Rolls-Royce to deliver the replacement for the Royal Navy's
Vanguard Class, which carries the UK's nuclear deterrent. The value
of the programme to the Group to date is GBP7.8bn, with additional
contract funding of GBP1.9bn received in 2021. Four Dreadnought
Class submarines will be built in Barrow, with the first of these
due to be in operational service in the early 2030s. Construction
of the first and second submarines continues to advance.
The major programme of investment to redevelop the Barrow site
to support the delivery of Dreadnought is progressing, with a
number of newly-constructed facilities now in operation.
Four Astute Class submarines have been delivered to the Royal
Navy, while the fifth, Anson, was launched in April. Final
installation and commissioning activities continue to ready her for
exit, which is scheduled to take place in 2022. The remaining two
submarines, Agamemnon and Agincourt, are at an advanced stage of
construction at our Barrow site.
The business has also commenced early design and concept work on
the Royal Navy's next generation of submarines, under an GBP85m
contract from the Ministry of Defence announced in September 2021.
BAE Systems will work alongside the SDA, Rolls-Royce, Babcock and
other industry partners on a new class of nuclear powered attack
submarines, which will eventually replace the Astute class. The
programme currently supports approximately 250 highly-skilled
jobs.
Maritime Services
Our Maritime Services business secured two HM Naval Base
Portsmouth contracts, Ship Engineering Management, and, in a joint
venture with KBR , Hard Facilities Management and Alongside
Services, worth more than GBP1bn under the UK Ministry of Defence's
Future Maritime Support Programme (FMSP). Service delivery under
these contracts came into effect on 1 October and will continue for
at least five years. The KBS Maritime joint venture with KBR was
established and is delivering the Hard Facilities Management and
Alongside Services contract.
The UK's Carrier Strike Group 2021 deployment was supported from
Portsmouth and in various locations along the deployment route. BAE
Systems coordinated the support to all vessels in the group. In
addition to deployed support to the Mediterranean, Indian Ocean and
Pacific Ocean for the Carrier Strike Group, all five of the Royal
Navy's Batch 2 Offshore Patrol Vessels are being supported around
the globe by our teams.
In the Underwater Weapons business stream, the Torpedo Repair
and Maintenance contract for in-service support to the UK's Royal
Navy continues to perform well. The GBP270m Spearfish torpedo
upgrade programme, delivered for the UK Ministry of Defence and
Royal Navy, continues and the Ministry of Defence granted approval
for Defence Munitions to proceed with the build of the upgraded
weapons in October. This represents a key milestone towards
concluding the development and initial manufacture phase of the
programme.
A GBP119m export order for our Commander land radar was secured.
The development of a new production line at our Cowes site is
underway to support the delivery of this contract.
Techmodal, the applied data science consultancy we acquired in
August 2020, secured a number of contracts and was selected in
October as the Royal Navy's digital services programme partner for
data science.
The Maritime Services business continues to support a range of
customer trials and experimentation programmes to develop and
implement new technologies. In 2021, these have included Navy X
trials of our autonomous RIB with HMS Argyll, the Royal Navy's
submarine firing trials of the upgraded Spearfish torpedo, and the
testing of enhanced radar capabilities during the NATO Formidable
Shield 21 exercise.
Land UK
Following the award of the Next Generation Munitions Solution
(NGMS) contract in November 2020, the business enacted plans to
ensure an effective transition between the current munitions supply
contract and NGMS. Transition plans are progressing well and the
business is on-track to meet the jointly agreed timeline for the
closure of the current contract. In support of the new contract,
the business has commenced a GBP90m programme to update and expand
its manufacturing equipment and infrastructure.
Mobilisation of the Challenger 3 contract, secured in 2021 by
the RBSL joint venture, is progressing well. The contract, worth
GBP300m to BAE Systems, will see RBSL upgrade 148 Challenger 2 Main
Battle Tanks into the Challenger 3 configuration for the British
Army.
Challenger 3 will be a network-enabled, digital Main Battle Tank
with state-of-the-art lethality, upgraded survivability, plus
world-class surveillance and target acquisition capabilities. The
vehicles will be manufactured at RBSL's Telford facility, with
support from other RBSL sites near Bristol, Newcastle and
Bovington.
The programme is expected to create and sustain more than 200
skilled jobs within RBSL and provide opportunities to more than 60
apprentices over the coming years. The contract will also create
and sustain more than 450 jobs across the UK supply chain, helping
to protect engineering and manufacturing skills. The Challenger 3
contract, together with the Mechanised Infantry Vehicle contract,
secured at the end of 2020, will provide workload for the business
for the next ten years.
Looking forward
Forward-looking information for the Maritime reporting segment
is provided on page 38.
1. Including share of equity accounted investments.
2. For alternative performance measure definitions see Financial
glossary on page 12.
3. International Financial Reporting Standards.
Segmental performance: Cyber & Intelligence
Cyber & Intelligence, with 9,600 employees(1) , comprises
the US - based Intelligence & Security business and
UK-headquartered Applied Intelligence business, and covers the
Group's cyber security, secure government and commercial financial
security activities.
Operational and strategic key points
Intelligence & Security
- US-based Intelligence & Security business continues to
maintain its bid pipeline, perform on existing contracts and win
new orders.
- Awarded a five-year, up to $478m (GBP353m) Systems Engineering
and Integration Support Services contract from the US Navy
Strategic Systems Programs office.
- Awarded classified contracts from Department of Defense and
Intelligence Community customers in excess of $0.8bn (GBP0.6bn) to
deliver mission-enabling engineering services.
- Agreement announced for the proposed acquisition of Bohemia
Interactive Simulations, a global software developer of simulation
and training solutions for allied military customers .
Applied Intelligence
- Strong order intake and revenue growth from the government- and defence-facing business units.
- Increasing profitability, supported by strong programme
execution, productivity and cost base optimisation. Financial
Services' profitability benefited from restructuring in 2020.
- Acquisition of In-Space Missions, a UK-based satellite and
satellite systems company, to accelerate our Space
capabilities.
Financial performance
Financial performance measures as Financial performance measures derived
defined by the Group(2) from IFRS(3)
2021 2020 2021 2020
------------------- --------- --------- ------------------------ --------- ---------
Sales GBP1,752m GBP1,812m Revenue GBP1,752m GBP1,812m
------------------- --------- --------- ------------------------ --------- ---------
Underlying EBIT GBP156m GBP135m Operating profit GBP152m GBP138m
------------------- --------- --------- ------------------------ --------- ---------
Return on sales 8.9% 7.5% Return on revenue 8.7% 7.6%
------------------- --------- --------- ------------------------ --------- ---------
Operating business Cash flow from operating
cash flow GBP173m GBP221m activities GBP202m GBP251m
------------------- --------- --------- ------------------------ --------- ---------
Order intake(1) GBP1,817m GBP1,987m Order book GBP1.0bn GBP1.1bn
------------------- --------- --------- ------------------------ --------- ---------
Order backlog(1) GBP1.6bn GBP1.7bn
------------------- --------- ---------
- Sales in Applied Intelligence were stable as growth in
government and defence businesses was offset by impact of
commercial businesses disposed of in 2020.
- US Intelligence & Security business saw sales growth of 3%
excluding the impact of exchange translation.
- Return on sales expanded by 140bps as both Applied
Intelligence and Intelligence & Security delivered strong
programme performance, high utilisation levels and more efficient
cost structures.
- Operating business cash flow reflects good programme execution.
- Applied Intelligence saw high demand in its government and
defence business, with a book-to-bill(4) ratio of 1.1 .
Operational performance
Intelligence & Security
Air & Space Force Solutions
On the US Air Force Intercontinental Ballistic Missile
Integration Support Contractor (ISC) programme, we continue to
provide programme management, systems engineering, integration and
testing, sustainment and cyber defence support, with cumulative
funding approaching the $1.1bn (GBP0.8bn) contractual ceiling. We
submitted a proposal for the recompete of the programme in January
2021 for the next 18-year contract. The US government advised us
that it expects to announce the ISC 2.0 award in the first quarter
of 2022. As a result, the US Air Force approved a one-year ISC 1.0
contract extension modification of $185m (GBP137m).
We were awarded Delivery Order 3 valued at $32m (GBP24m), taking
our total award value to $70m (GBP52m) on a multi-year Indefinite
Delivery, Indefinite Quantity contract to provide electronic
hardware and engineering services for a US government customer,
with an expected lifecycle value of $474m (GBP350m).
We were awarded Lots 15 to 19 of the Network Daughter Board
production on the F-35 programme with Lockheed Martin, valued at
$42m (GBP31m).
Integrated Defense Solutions
We were awarded a five-year, $478m (GBP353m) sole-source
contract to continue supporting weapon systems on board US Ohio and
UK Vanguard Class submarines, as well as future US Columbia Class
and UK Dreadnought Class submarines.
Continuing more than 30 years of strong performance for the
Naval Air Warfare Center, we were awarded a five-year, $140m
(GBP103m) follow-on contract to provide research and development,
evaluation, engineering, integration, testing, logistics,
alteration, installation, training and hardware support services
across a variety of fixed and mobile, shipboard and shore-based and
airborne platforms.
We were awarded a five-year, $68m (GBP50m) contract to provide
air traffic control and landing systems (ATC&LS) platform
sustainment and engineering services to develop, produce, equip,
test, sustain and update key expeditionary ATC aviation
systems.
We were awarded two contracts totalling $140m (GBP103m) by the
Defense Logistics Agency to provide preventative and corrective
maintenance for Automated Fuel Systems around the globe.
We were awarded a five-year, Indefinite Delivery, Indefinite
Quantity, contract worth up to $154m (GBP114m) to support the US
Navy with rapid integration and sustainment of command, control,
communications, computers, combat systems, intelligence,
surveillance and reconnaissance (C5ISR) systems.
We also were awarded a five-year, $137m (GBP101m) US Navy
contract to provide lifecycle sustainment of C5ISR systems,
including integrated product support, configuration management and
technical and project management.
Intelligence Solutions
BAE Systems is executing on a $506m (GBP374m) contract to
provide industry-leading and multi-disciplinary analytic support
capabilities supporting first responders, warfighters and policy
makers. These tailored analytic services span a multitude of
mission specifications and operating environments. Services
include, but are not limited to: source discovery and collection;
time-dominant and long-term analytic assessments; cartographic
production; and multi-media content generation.
We are delivering a transformative software delivery approach
increasing the pace and responsiveness of enabling business systems
on a $108m (GBP80m) contract provided by a US government customer.
BAE Systems is leveraging a user experience-driven design
methodology to understand the nuances of end-user requirements and
accelerating capability delivery through DevSecOps. Additionally,
BAE Systems is pioneering the implementation of the Portfolio
Delivery model to ensure end-to-end utility and satisfaction across
stakeholder groups.
Following our 2020 award of one of three Phase I contracts from
the US Marine Corps to develop a state-of-the-art wargaming system
for the new Wargaming Center in Quantico, Virginia, we were
subsequently down-selected as the single prime contractor in Phase
II. As the Lead Systems Integrator, we are conducting integrated
prototyping of modelling and simulation tools, developing a
cloud-based environment which will be deployed for operations
during Phase III.
We have seen strong growth in our Federal Civilian business as
we continue to execute cybersecurity and cloud programmes for
agencies such as Federal Emergency Management Agency, Cybersecurity
and Infrastructure Security Agency and the Department of
Justice.
In November we announced the proposed acquisition of Bohemia
Interactive Simulations (BISim), a privately held global software
developer of simulation and training solutions for military
organisations around the world. BISim is headquartered in Orlando,
Florida, with more than 325 employees in the US, UK, Australia, the
Czech Republic, and Slovakia. The acquisition is subject to
regulatory approvals and other pre-closing conditions.
Applied Intelligence
The business performed strongly in 2021, delivering revenue
growth and a further increase in profitability. We have continued
to see strong levels of demand for our products and services, as
our core customers continue to invest in building cyber, data,
digital and analytical capabilities. This has resulted in further
growth in order intake, driven by our National Security and Defence
& Space business units in particular. Ongoing investment in
resourcing, learning and development has supported growth in our
headcount which, coupled with strong levels of utilisation and
productivity, has enabled us to drive significant revenue growth.
Programme execution continues to be strong and well controlled
across all areas supporting underlying margin growth. Operating
costs have reduced compared with the prior year as the impact of a
restructuring and operational efficiency initiative continues to
deliver positive results.
In September we announced the acquisition of In-Space Missions,
a UK-based company that designs, builds and operates satellites and
satellite systems. This acquisition supports our ambition to
accelerate our space capabilities to include a range of satellites
and systems, reflecting government prioritisation of space to
defend and protect their nations, people and businesses in a
digital world. This acquisition and associated technological
developments will further help deliver information advantage for
our customers in the continued integration of land, sea, air, space
and cyber domains.
Government
The National Security business continues to grow strongly
supported by increasing government investment in operational cyber
and digital transformation within the National Security community.
Key customers have continued to demonstrate their confidence in our
business through multi-year deals and frameworks that will enable
us to grow and deliver capability to best support their strategic
aims. The business continues to invest in training and development
academies in addition to recruiting experienced cleared resources
to drive future growth.
The International Government business has delivered revenue
growth driven by new work across key accounts and continued
positive delivery on major programmes . Travel limitations have had
some minor impacts on delivery but these have been largely overcome
by effective remote working and ongoing optimisation of operating
costs.
The UK Central Government business has delivered significant
revenue growth as a result of a number of new account wins and
ongoing involvement in a number of major programmes across central
government departments. A particularly significant programme
relates to the data and digital work being undertaken with the UK
Home Office supporting UK Border Force in its strategy to create
the most effective border in the world.
Within our Defence & Space business unit we are seeing
increasing levels of demand due to increased levels of defence
funding and the UK Strategic Command commitment to substantial
investment in data, digitisation, intelligence and cyber. This has
resulted in strong demand for our solutions in cyber and
electromagnetic activities, digital transformation and complex
communications, driving an increase in order intake and revenue for
the business unit. The acquisition of In-Space Missions in addition
to ongoing organic investment is supporting our ambition to develop
space capability, recognising space as an area for increasing
investment and focus for customers. Resourcing and investment in
skills remains a key focus to drive further growth going
forward.
Financial Services
The Financial Services business has delivered a significant
improvement in profitability in the year, the result of the
restructuring activity completed in 2020. Order intake has grown
year on year boosted by large account wins in North America and
Europe. Ongoing investment in our market-leading NetReveal platform
continues to deliver anti-money laundering regulatory compliance
and anti-fraud capabilities to our global customer base.
Looking forward
Forward-looking information for the Cyber & Intelligence
reporting segment is provided on page 38.
1. Including share of equity accounted investments.
2. For alternative performance measure definitions see Financial
glossary on page 12.
3. International Financial Reporting Standards.
4. Ratio of Order intake to Sales.
Segmental looking forward
Electronic Systems
Electronic Systems comprises the US- and UK - based electronics
activities, including electronic warfare systems, navigation
systems, electro-optical sensors, military and commercial digital
engine and flight controls, precision guidance and seeker
solutions, next-generation military communications systems and data
links, persistent surveillance capabilities, space electronics and
electric drive propulsion systems.
Electronic Systems is well positioned for growth in the medium
term as it continues to address current and evolving US defence
priority programmes from its strong franchise positions in
electronic warfare, navigation systems, precision guidance and
seeker solutions. Electronic Systems has a long-standing programme
of research and development. Its focus remains on maintaining a
diverse portfolio of defence and commercial products and
capabilities for US and international customers. The business
expects to benefit from its ability to apply innovative technology
solutions that meet defence customers' changing requirements. As a
result, the business is well positioned for the medium term with
significant roles on F-35 Lightning II, F-15 upgrade, M-Code GPS
upgrades and classified programmes, as well as with specific
products such as APKWS(R) . Over the longer term, the business is
poised to leverage its technology strength in emerging areas of
demand such as precision weaponry, space resilience, hyper-velocity
and autonomous vehicles. With our electric drive propulsion
capabilities we are well placed to continue to address the need for
low and zero emission technology across an increasing number of
platforms.
The commercial aviation market has been negatively impacted by
the pandemic and whilst we are seeing a degree of recovery it is
expected to take several years to reach previous levels. The
business has been scaled appropriately and Electronic Systems'
technology innovations are enabling the business to maintain its
long-standing customer positions and adjust as the market
evolves.
Platforms & Services (US)
Platforms & Services (US), with operations in the US, UK and
Sweden, manufactures and upgrades combat vehicles, weapons and
munitions, and delivers services and sustainment activities,
including naval ship repair and the management and operation of
government-owned munitions facilities.
Combat Mission Systems is underpinned by a strong order backlog
and incumbencies on key franchise programmes. These include the US
Army's Armored Multi-Purpose Vehicle, M109A7 self-propelled
howitzer, Bradley upgrade programmes, M88 HERCULES recovery
vehicle, the US Marine Corps' Amphibious Combat Vehicle, as well as
the CV90 and BvS10 export programmes from BAE Systems Hägglunds.
FNSS continues to execute on its order book of both Turkish and
international orders. These long-term contracts and franchise
positions make the combat vehicles business well placed for growth
in the medium term.
In the maritime domain, the sector has a strong position on
naval gun and missile launch programmes and US Navy ship repair
activities where the business has invested in capitalised
infrastructure and its facilities in key home ports. The business
remains well aligned to the US Navy's operational strategy and
projected fleet increase.
The Group remains a leading provider of gun systems and
precision strike capabilities and in the complex ordnance
manufacturing business, continues to manage and operate the US
Army's Radford and Holston munitions facilities .
Air
Air comprises the Group's UK-based air activities for European
and International Markets, US Programmes, and development of Future
Combat Air Systems, alongside its businesses in Saudi Arabia and
Australia, together with its 37.5% interest in the European MBDA
joint venture.
Future Typhoon production and support sales are underpinned by
existing contracts. Discussions continue in relation to potential
further contract awards for Typhoon. Production of rear fuselage
assemblies for the F-35 has reached full rate levels and is
expected to be sustained at these current levels. The business
plays a significant role in the F-35 sustainment programme in
support of Lockheed Martin. The UK Combat Air Strategy provides the
base to enable long-term planning and investment in a key strategic
part of the business.
In Saudi Arabia, the In-Kingdom Industrial Participation
programme continues to make good progress consistent with our
long-term strategy, as well as the Saudi Arabian government's
National Transformation Plan and Vision 2030. Our in-Kingdom
support business is expected to remain stable underpinned by
long-standing contracts renewed every five years.
In order to provide ongoing capability to international
customers, the Group is reliant on the continued approval of export
licences by a number of governments. The withholding of such export
licences may have an adverse effect on the Group's provision of
capability to the Kingdom of Saudi Arabia and the Group will
continue to work closely with the UK government to manage the
impact of any such occurrence.
The Australian business has long-term sustainment and upgrade
activities in maritime, air, wide-area surveillance, missile
defence and electronic systems. It has expanded into ship design
and production on the Hunter Class Frigate programme, which will
drive growth in the coming years and is pursuing a number of
further opportunities.
MBDA has a strong order backlog supporting future years' sales.
Development programmes continue to improve the long-term
capabilities of the business in air, land and sea domains .
Maritime
Maritime comprises the Group's UK-based maritime and land
activities.
Maritime
The outlook is stable based on long-term contracted positions
with a number of UK domestic and international opportunities to
further this outlook. Within Submarines, the business is executing
on two long-term programmes. On the Astute Class programme, the
fifth of class is undergoing final commissioning activities and the
two remaining boats are in build. On the Dreadnought programme,
manufacturing activities continue on the first two boats of a
four-boat programme. Investment continues in the Barrow facilities
in order to provide the capabilities to deliver these long-term
programmes through the decade and beyond. In shipbuilding, sales
are underpinned by the manufacture of Type 26 frigates. The
through-life support of surface ship platforms provides a
sustainable business in technical services and mid-life upgrades
.
Land UK
Future work will be underpinned by existing in-service support
contracts and the contracted workshare on the Mechanised Infantry
Vehicle and Challenger 3 Main Battle Tank programmes. Munitions
supply continues under the Munitions Acquisition Supply Solution
partnering agreement which will be followed in 2023 by the
recently-agreed 15-year Next Generation Munitions Solution.
Cyber & Intelligence
Cyber & Intelligence comprises the US-based Intelligence
& Security business and UK-headquartered Applied Intelligence
business, and covers the Group's cyber security, secure government
and commercial financial security activities.
Intelligence & Security
The outlook for the US government services sector is stable with
the opportunity for modest mid-term growth, although market
conditions remain highly competitive and continue to evolve in
response to shifting government priorities. The Intelligence &
Security (I&S) business will continue to leverage its
established market positions, reputation for reliable performance
and its proven digital engineering expertise to support the
government's modernisation initiatives. As a trusted partner,
I&S is well positioned to meet customer demands for innovative,
cost-effective and cyber-hardened solutions to pursue both
recompete contracts and new business across its portfolio of
sustainment, system integration and modernisation solutions for
military, intelligence and Federal Civilian agency customers.
Applied Intelligence
The services and products we offer in our Government businesses
ensure that we are well placed to deliver growth as UK cyber, data
and digital budgets increase and cyber security and information
advantage continue to be an important part of a nation's security
and economic prosperity.
We continue to invest in the Financial Services division to
deliver growth given the ongoing market demand for anti-fraud and
regulatory compliance solutions.
Effective from 2022, a new operating business, BAE Systems
Digital Intelligence, has been formed, bringing together many of
our world-leading digital transformation, cybersecurity, complex
data analysis, and communication and information capabilities from
across the Group. This includes the whole of the Applied
Intelligence business.
This activity will enable even closer collaboration across the
Group to help our customers operate successfully, safely and
efficiently in the digital world, and in time bringing a greater
range of capabilities to our customers.
Consolidated income statement
for the year ended 31 December
2021 2020
--------------- ---------------
Total Total
Notes GBPm GBPm GBPm GBPm
------------------------------------------------- ----- ----- -------- ----- ----------
Continuing operations
Revenue 2 19,521 19,277
Operating costs (17,743) (17,686)
Other income 472 270
Share of results of equity accounted investments 139 69
------------------------------------------------- ----- ----- -------- ----- ----------
Operating profit 2 2,389 1,930
----- -----
Financial income 32 17
Financial expense (311) (351)
----- -----
Net finance costs 3 (279) (334)
------------------------------------------------- ----- ----- -------- ----- ----------
Profit before taxation 2,110 1,596
Taxation expense 4 (198) (225)
------------------------------------------------- ----- ----- -------- ----- ----------
Profit for the year 1,912 1,371
------------------------------------------------- ----- ----- -------- ----- ----------
Attributable to:
Equity shareholders 1,758 1,299
Non-controlling interests 154 72
------------------------------------------------- ----- ----- -------- ----- ----------
1,912 1,371
------------------------------------------------- ----- ----- -------- ----- ----------
Earnings per share 5
Basic earnings per share 55.2p 40.7p
Diluted earnings per share 54.7p 40.5p
------------------------------------------------- ----- ----- -------- ----- ----------
Consolidated statement of comprehensive income
for the year ended 31 December
2021 2020
--------------------------- -----------------------------
Other Retained Other Retained
reserves earnings Total reserves earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------ --------- --------- ----- --------- --------- -------
Profit for the year - 1,912 1,912 - 1,371 1,371
------------------------------------------------------ --------- --------- ----- --------- --------- -------
Other comprehensive income
Items that will not be reclassified to the
income statement:
Consolidated:
Remeasurements on post-employment benefit
schemes - 2,451 2,451 - (1,361) (1,361)
Tax on items that will not be reclassified
to the income statement - (394) (394) - 330 330
Share of the other comprehensive income
of associates and joint ventures accounted
for using the equity method (net of tax) - 64 64 - (55) (55)
Items that may be reclassified to the income
statement:
Consolidated:
Currency translation on foreign currency
net investments 32 - 32 (224) - (224)
Reclassification of cumulative currency
translation reserve on disposal of subsidiary (9) - (9) (35) - (35)
Fair value gain arising on hedging instruments
during the period 11 - 11 46 - 46
Cumulative fair value (gain)/loss on hedging
instruments reclassified to the income statement (32) - (32) 42 - 42
Tax on items that may be reclassified to
the income statement 4 - 4 (16) - (16)
Share of the other comprehensive income
of associates and joint ventures accounted
for using the equity method (net of tax) (4) - (4) (3) - (3)
------------------------------------------------------ --------- --------- ----- --------- --------- -------
Total other comprehensive income for the
year (net of tax) 2 2,121 2,123 (190) (1,086) (1,276)
------------------------------------------------------ --------- --------- ----- --------- --------- -------
Total comprehensive income for the year 2 4,033 4,035 (190) 285 95
------------------------------------------------------ --------- --------- ----- --------- --------- -------
Attributable to:
Equity shareholders (3) 3,882 3,879 (176) 213 37
Non-controlling interests 5 151 156 (14) 72 58
------------------------------------------------------ --------- --------- ----- --------- --------- -------
2 4,033 4,035 (190) 285 95
------------------------------------------------------ --------- --------- ----- --------- --------- -------
Consolidated statement of changes in equity
for the year ended 31 December
Attributable to equity holders
of BAE Systems plc
-------------------------------------------------
Issued
share Share Other Retained Non-controlling Total
capital premium reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- -------- -------- --------- --------- ------- --------------- -------
Balance at 1 January 2021 87 1,249 5,923 (2,616) 4,643 278 4,921
-------- -------- --------- --------- ------- --------------- -------
Profit for the year - - - 1,758 1,758 154 1,912
Total other comprehensive income
for the year - - (3) 2,124 2,121 2 2,123
-------- -------- --------- --------- ------- --------------- -------
Total comprehensive income for
the year - - (3) 3,882 3,879 156 4,035
Share-based payments (inclusive
of tax) - - - 94 94 - 94
Cumulative fair value gain on hedging
instruments transferred to the
balance sheet (net of tax) - - (35) - (35) - (35)
Ordinary share dividends - - - (777) (777) (202) (979)
Purchase of own shares (2) - 2 (371) (371) - (371)
Unclaimed assets programme proceeds - 3 - - 3 - 3
At 31 December 2021 85 1,252 5,887 212 7,436 232 7,668
-------------------------------------- -------- -------- --------- --------- ------- --------------- -------
Balance at 1 January 2020 87 1,249 6,156 (2,085) 5,407 104 5,511
Profit for the year - - - 1,299 1,299 72 1,371
Total other comprehensive income
for the year - - (176) (1,086) (1,262) (14) (1,276)
-------- -------- --------- --------- ------- --------------- -------
Total comprehensive income for
the year - - (176) 213 37 58 95
Share-based payments (inclusive
of tax) - - - 73 73 - 73
Cumulative fair value gain on hedging
instruments transferred to the
balance sheet (net of tax) - - (35) - (35) - (35)
Ordinary share dividends - - - (746) (746) (28) (774)
Partial disposal of shareholding
in subsidiary undertaking - - (22) (71) (93) 144 51
-------------------------------------- -------- -------- --------- --------- ------- --------------- -------
At 31 December 2020 87 1,249 5,923 (2,616) 4,643 278 4,921
-------------------------------------- -------- -------- --------- --------- ------- --------------- -------
Consolidated balance sheet
as at 31 December
2021 2020
Notes GBPm GBPm
----------------------------------------------- ----- -------- --------
Non-current assets
Intangible assets 11,716 11,745
Property, plant and equipment 2,852 2,655
Right-of-use assets 1,091 1,053
Investment property 67 128
Equity accounted investments 554 409
Other investments 76 -
Other receivables 551 506
Post-employment benefit surpluses 6 483 408
Other financial assets 305 248
Deferred tax assets 622 972
------------------------------------------------ ----- -------- --------
18,317 18,124
----------------------------------------------- ----- -------- --------
Current assets
Inventories 811 858
Trade, other and contract receivables 4,825 5,491
Current tax 71 6
Other financial assets 194 189
Cash and cash equivalents 2,917 2,768
Assets held for sale - 94
------------------------------------------------ ----- -------- --------
8,818 9,406
----------------------------------------------- ----- -------- --------
Total assets 27,135 27,530
------------------------------------------------ ----- -------- --------
Non-current liabilities
Loans (4,604) (4,957)
Lease liabilities (1,083) (1,020)
Contract liabilities (519) (524)
Other payables (1,248) (1,164)
Post-employment benefit obligations 6 (2,607) (4,893)
Other financial liabilities (302) (282)
Deferred tax liabilities (77) -
Provisions (331) (386)
(10,771) (13,226)
----------------------------------------------- ----- -------- --------
Current liabilities
Loans and overdrafts (457) (467)
Lease liabilities (212) (236)
Contract liabilities (2,874) (3,238)
Trade and other payables (4,636) (4,898)
Other financial liabilities (214) (181)
Current tax (27) (72)
Provisions (276) (291)
(8,696) (9,383)
----------------------------------------------- ----- -------- --------
Total liabilities (19,467) (22,609)
------------------------------------------------ ----- -------- --------
Net assets 7,668 4,921
------------------------------------------------ ----- -------- --------
Capital and reserves
Issued share capital 85 87
Share premium 1,252 1,249
Other reserves 5,887 5,923
Retained earnings/(deficit) 212 (2,616)
------------------------------------------------ ----- -------- --------
Total equity attributable to equity holders of
BAE Systems plc 7,436 4,643
Non-controlling interests 232 278
------------------------------------------------ ----- -------- --------
Total equity 7,668 4,921
------------------------------------------------ ----- -------- --------
Approved by the Board of BAE Systems plc on 23 February 2022 and
signed on its behalf by:
C N Woodburn B M Greve
Chief Executive Group Finance Director
Consolidated cash flow statement
for the year ended 31 December
2021 2020
Notes GBPm GBPm
---------------------------------------------------------------------- ----- ------- -------
Profit for the year 1,912 1,371
Taxation expense 4 198 225
Adjustment in respect of research and development expenditure credits (16) (28)
Share of results of equity accounted investments (139) (69)
Net finance costs 279 334
Depreciation, amortisation and impairment 720 675
Gain on investment revaluation - (6)
Profit on disposal of property, plant and equipment, and investment
property (192) (25)
Profit on sale and leaseback - (21)
(Gain)/loss in respect of held for sale assets and business disposals (158) 5
Cost of equity-settled employee share schemes 92 74
Movements in provisions (66) (30)
Difference between pension funding contributions paid and the pension
charge (18) (1,396)
(Increase)/decrease in working capital:
Inventories 54 24
Trade, other and contract receivables 610 -
Trade and other payables, and contract liabilities (615) 122
Research and development expenditure credits - cash received 20 162
Taxation paid (234) (251)
---------------------------------------------------------------------- ----- ------- -------
Net cash flow from operating activities 2,447 1,166
---------------------------------------------------------------------- ----- ------- -------
Dividends received from equity accounted investments 57 27
Interest received 23 19
Principal element of finance lease receipts 10 10
Purchase of property, plant and equipment, and investment property (366) (385)
Purchase of intangible assets (96) (92)
Purchase of non-current other investments (15) -
Proceeds from sale of property, plant and equipment, and investment
property 271 68
Proceeds from sale of non-current other investments - 19
Equity accounted investment funding (3) (2)
Purchase of subsidiary undertakings, net of cash and cash equivalents
acquired (30) (1,706)
Cash flow in respect of held for sale assets and business disposals,
net of cash and cash equivalents disposed 215 5
Net cash flow from investing activities 66 (2,037)
---------------------------------------------------------------------- ----- ------- -------
Interest paid (247) (227)
Equity dividends paid 7 (777) (746)
Purchase of own shares (368) -
Dividends paid to non-controlling interests (202) (19)
Partial disposal of shareholding in subsidiary undertaking 28 27
Principal element of lease payments (217) (236)
Cash inflow from derivative financial instruments (excluding cash
flow hedges) 61 59
Cash outflow from derivative financial instruments (excluding cash
flow hedges) (149) (43)
Cash flow from movement in cash collateral (18) (2)
Cash inflow from loans - 2,666
Cash outflow from repayment of loans (367) (506)
---------------------------------------------------------------------- ----- ------- -------
Net cash flow from financing activities (2,256) 973
---------------------------------------------------------------------- ----- ------- -------
Net increase in cash and cash equivalents 257 102
Cash and cash equivalents at 1 January 2,667 2,587
Effect of foreign exchange rate changes on cash and cash equivalents (7) (22)
---------------------------------------------------------------------- ----- ------- -------
Cash and cash equivalents at 31 December 2,917 2,667
---------------------------------------------------------------------- ----- ------- -------
Comprising:
Cash and cash equivalents 2,917 2,768
Overdrafts - (101)
---------------------------------------------------------------------- ----- ------- -------
Cash and cash equivalents at 31 December 2,917 2,667
---------------------------------------------------------------------- ----- ------- -------
Notes to the accounts
1. Preparation
Basis of preparation and statement of compliance
The consolidated financial statements of BAE Systems plc have
been prepared on a going concern basis and in accordance with
UK-adopted International Financial Reporting Standards (IFRS) and
the Companies Act 2006 applicable to companies reporting under
IFRS. These condensed consolidated financial statements do not
comprise statutory accounts within the meaning of Section 435 of
the Companies Act 2006 and should be read in conjunction with the
Annual Report 2021. The comparative figures for the year ended 31
December 2020 are not the Group's statutory accounts for that
financial year. Those financial statements have been reported upon
by the Group's auditor and delivered to the registrar of companies.
The report of the auditor was unqualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report and did not contain
statements under Section 498 (2) or (3) of the Companies Act
2006.
The 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 certain financial
assets and financial liabilities (including derivative
instruments).
2. Segmental analysis and revenue recognition
Sales and revenue by reporting segment
Add
Deduct Subsidiaries'
Share of revenue revenue from
of equity accounted equity accounted
Sales investments investments Revenue
-------------- ---------------------- ------------------- --------------
2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ------ ---------- ---------- --------- -------- ------ ------
Electronic Systems 4,491 4,557 (54) (45) 54 45 4,491 4,557
Platforms & Services
(US) 3,395 3,503 (79) (108) 2 4 3,318 3,399
Air 8,321 7,910 (2,505) (2,289) 1,097 972 6,913 6,593
Maritime 3,416 3,257 (79) (65) 3 3 3,340 3,195
Cyber & Intelligence 1,752 1,812 - - - - 1,752 1,812
HQ 307 190 (271) (151) - 1 36 40
-------------------------- ------ ------ ---------- ---------- --------- -------- ------ ------
21,682 21,229 (2,988) (2,658) 1,156 1,025 19,850 19,596
Intra-group sales/revenue (372) (367) 9 6 34 42 (329) (319)
-------------------------- ------ ------ ---------- ---------- --------- -------- ------ ------
21,310 20,862 (2,979) (2,652) 1,190 1,067 19,521 19,277
-------------------------- ------ ------ ---------- ---------- --------- -------- ------ ------
Operating profit/(loss) by reporting segment
Amortisation
of programme,
customer-related
and other Financial
intangible and taxation
assets, and expense of
Underlying Non-recurring impairment equity accounted Operating
EBIT(1) items(2) of intangibles investments profit/(loss)
------------ --------------- ------------------- ------------------- ----------------
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----- ----- ------- ------ --------- -------- --------- -------- ------- -------
Electronic Systems 766 674 33 15 (84) (40) - - 715 649
Platforms &
Services
(US) 259 190 - 7 (1) (1) (6) (13) 252 183
Air 856 909 132 - (13) - (45) (48) 930 861
Maritime 288 279 6 - (2) (4) (3) (3) 289 272
Cyber &
Intelligence 156 135 (3) 3 (1) - - - 152 138
HQ (120) (150) 182 (6) - (1) (11) (16) 51 (173)
------------------- ----- ----- ------- ------ --------- -------- --------- -------- ------- -------
2,205 2,037 350 19 (101) (46) (65) (80) 2,389 1,930
------------------- ----- ----- ------- ------ --------- -------- --------- --------
Net finance costs (279) (334)
------------------- ----- ----- ------- ------ --------- -------- --------- -------- ------- -------
Profit before
taxation 2,110 1,596
Taxation expense (198) (225)
------------------- ----- ----- ------- ------ --------- -------- --------- -------- ------- -------
Profit for the year 1,912 1,371
------------------- ----- ----- ------- ------ --------- -------- --------- -------- ------- -------
1. With effect from 2021, the Group adopted the underlying EBIT
profitability measure, to include charges relating to software and
development intangible amortisation, in place of the previously
reported underlying EBITA measure, as it reflects a better measure
of underlying profitability, by including amortisation of software
and development intangibles as these charges are viewed as a
recurring operational cost for the business. Underlying earnings
per share has also been recalculated to ensure consistency with the
updated operational profitability measure. The underlying
performance for 2020 of segments and the Group has been
re-presented on this new basis.
2. Non-recurring items in 2021 reflect a gain of GBP350m,
comprising a gain in HQ on the sale of the Filton and Broughton
sites (GBP182m), gains on disposal of Advanced Electronics Company
in the Air sector (GBP132m, of which GBP63m is attributable to
non-controlling interests), and on disposal of a business in our
Electronic Systems segment (GBP26m), and a net GBP10m gain relating
to historical and current year acquisitions. Non-recurring items in
2020 comprises a settlement gain on a US pension annuity buy-out of
GBP64m, partially offset by acquisition-related costs of GBP20m, a
GBP13m impairment charge relating to Platforms & Services
(US)'s legacy Commercial Shipbuilding business which the business
exited in 2018, a Guaranteed Minimum Pension equalisation charge of
GBP7m and a loss on business disposals of GBP5m.
3. Net finance costs
2021 2020
GBPm GBPm
--------------------------------------------------------------- ----- -----
Interest income on cash and other financial instruments 29 16
Interest income on finance lease receivables 1 1
Net present value adjustments 2 -
Financial income 32 17
--------------------------------------------------------------- ----- -----
Interest expense on bonds and other financial instruments (206) (196)
Facility fees (3) (4)
Interest expense on lease liabilities (43) (44)
Net present value adjustments on provisions and other payables - (8)
Net interest expense on post-employment benefit obligations (65) (68)
Loss on remeasurement of financial instruments at fair value
through profit or loss(1,2) (29) (158)
Foreign exchange gains(2,3) 35 127
--------------------------------------------------------------- ----- -----
Financial expense (311) (351)
--------------------------------------------------------------- ----- -----
Net finance costs (279) (334)
--------------------------------------------------------------- ----- -----
1. Comprises gains and losses on derivative financial
instruments, including derivative instruments to manage the Group's
exposure to interest rate fluctuations on external borrowings and
exchange rate fluctuations on balances with the Group's
subsidiaries and equity accounted investments.
2. The net gain or loss on remeasurement of financial
instruments at fair value through profit or loss and the net gain
or loss on foreign exchange are presented within finance costs as
the gains and losses relate to the same underlying
transactions.
3. The foreign exchange gains primarily reflect exchange rate
movements on US dollar-denominated borrowings.
Additional analysis
2021 2020
GBPm GBPm
------------------------------------------------------------------ ----- -----
Net finance costs:
Group (279) (334)
Share of equity accounted investments (27) (32)
------------------------------------------------------------------ ----- -----
Total of Group and equity accounted investments' finance
costs (306) (366)
------------------------------------------------------------------ ----- -----
Analysed as:
Underlying net interest expense:
Group (220) (235)
Share of equity accounted investments (21) (20)
------------------------------------------------------------------ ----- -----
(241) (255)
Other:
Group:
Net interest expense on post-employment benefit obligations (65) (68)
Fair value and foreign exchange adjustments on financial
instruments and investments 6 (31)
Share of equity accounted investments:
Net interest expense on post-employment benefit obligations (2) (2)
Fair value and foreign exchange adjustments on financial
instruments and investments (4) (10)
------------------------------------------------------------------ ----- -----
Total of Group and equity accounted investments' finance
costs (306) (366)
------------------------------------------------------------------ ----- -----
4. Taxation expense
Reconciliation of taxation expense
The following table reconciles the theoretical income tax
expense, using the UK corporation tax rate, to the reported tax
expense. The reconciling items represent, besides the impact of tax
rate differentials and changes, non-taxable benefits or
non-deductible expenses arising from differences between the local
tax base and the reported financial statements.
2021 2020
GBPm GBPm
-------------------------------------------------------- ----- -----
Profit before taxation 2,110 1,596
-------------------------------------------------------- ----- -----
UK corporation tax rate 19% 19%
-------------------------------------------------------- ----- -----
Expected income tax expense (401) (303)
Effect of tax rates in foreign jurisdictions, including
US state taxes (56) (45)
Expenses not tax effected (5) (6)
Income not subject to tax 70 54
Research and development tax credits 23 12
Non-recurring items 48 (1)
Chargeable gains (3) (1)
Utilisation of previously unrecognised tax losses 2 1
Current year losses not tax effected - (3)
Adjustments in respect of prior years 109 44
Adjustments in respect of equity accounted investments 26 13
Tax rate adjustment 10 20
Other (21) (10)
-------------------------------------------------------- ----- -----
Taxation expense (198) (225)
-------------------------------------------------------- ----- -----
Calculation of the underlying effective tax rate
2021 2020
GBPm GBPm
------------------------------------------------------------------- ----- -----
Profit before taxation 2,110 1,596
Add back: Taxation expense of equity accounted investments 38 48
(Deduct): Taxable non-recurring items (347) -
(Deduct)/add back: Non-taxable non-recurring items (3) 4
Adjusted profit before taxation 1,798 1,648
------------------------------------------------------------------- ----- -----
Taxation expense (198) (225)
Taxation expense of equity accounted investments (38) (48)
Exclude: One-off tax benefit(1) (94) -
Exclude: Taxation adjustments in respect of taxable non-recurring
items 19 -
Exclude: Tax rate adjustment (10) -
Adjusted taxation expense (including equity accounted investments) (321) (273)
------------------------------------------------------------------- ----- -----
Underlying effective tax rate 18% 17%
------------------------------------------------------------------- ----- -----
1. The one-off tax benefit of GBP94m in 2021 is in respect of
agreements reached regarding the exposure arising from the April
2019 European Commission decision regarding the UK's Controlled
Foreign Company regime.
The Group's underlying effective tax rate is sensitive to the
geographic mix of profits and may be impacted when multiple
territories implement the Organisation for Economic Co-operation
and Development's Base Erosion and Profit Shifting (BEPS) 2 model
guidance. It is not currently possible to accurately assess the
impact of the model rules, but we will continue to monitor their
progress as they proceed towards statutory enactment.
5. Earnings per share
2021 2020
------------------------- -------------------------
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 1,758 55.2 54.7 1,299 40.7 40.5
Add back/(deduct):
Amortisation of programme, customer-related
and other intangible assets, and
impairment of intangibles, post
tax(1) 84 38
Net interest expense on post-employment
benefit obligations, post tax(1) 55 58
Fair value and foreign exchange
adjustments on financial instruments
and investments, post tax(1) (1) 34
Non-recurring items attributable
to shareholders, post tax(2) (279) (15)
Underlying earnings, post tax 1,617 50.7 50.4 1,414 44.3 44.0
----------------------------------------------- ----- -------- -------- ----- -------- --------
One-off tax benefit (94) -
----------------------------------------------- ----- -------- -------- ----- -------- --------
Underlying earnings, excluding 2021
one-off tax benefit 1,523 47.8 47.4 1,414 44.3 44.0
----------------------------------------------- ----- -------- -------- ----- -------- --------
Millions Millions Millions Millions
----------------------------------------------- ----- -------- -------- ----- -------- --------
Weighted average number of shares
used in calculating basic earnings
per share 3,187 3,187 3,191 3,191
Incremental shares in respect of
employee share schemes 24 19
----------------------------------------------- ----- -------- -------- ----- -------- --------
Weighted average number of shares
used in calculating diluted earnings
per share 3,211 3,210
----------------------------------------------- ----- -------- -------- ----- -------- --------
1. The tax impact is calculated using the underlying effective
tax rate of 18% (2020 17%). The calculation of the underlying
effective tax rate is shown in note 4.
2. In 2021, GBP63m of the gain on disposal of AEC was
attributable to non-controlling interest. Therefore, only the gain
attributable to shareholders has been removed in calculating the
underlying earnings attributable to shareholders. See note 12 for
more details. The tax on non-recurring items has been determined
using the actual tax due on those items, see note 4 for
details.
6. Post-employment benefits
Funding
Introduction
The majority of the UK and US defined benefit pension schemes
are funded by the Group's subsidiaries and equity accounted
investments. The individual pension schemes' funding requirements
are based on actuarial measurement frameworks set out in their
funding policies.
For funding valuation purposes, pension scheme assets are
included at market value at the valuation date, whilst the
liabilities are measured on an actuarial funding basis using the
projected unit credit method and discounted to their present value
based on prudent assumptions set by the trustees following
consultation with scheme actuaries.
The funding valuations are performed by professionally qualified
independent actuaries and include assumptions which differ from the
actuarial assumptions used for IAS 19 accounting purposes shown on
page 51. The purpose of the funding valuations is to design funding
plans which ensure that the schemes have sufficient funds available
to meet future benefit payments.
UK valuations
Funding valuations of the Group's UK defined benefit pension
schemes are performed every three years. Following the merger of
several of the Group's UK pension schemes in October 2019, the
Company and trustees agreed to carry out an early triennial funding
valuation for the Main Scheme as at 31 October 2019.
The results of the most recent triennial valuations are shown
below. These valuations and, where necessary, deficit recovery
plans were agreed with the trustees and certified by the scheme
actuaries after consultation with The Pensions Regulator in the
UK.
Main Other
Scheme as schemes
at as at
31 October 31 March
2019 2020
GBPbn GBPbn
---------------------------------------------------- ---- ------------ -----------
Market value of assets 20.6 2.1
Present value of liabilities (22.5) (2.0)
-------------------------------------------------------------- ------------ -----------
Funding (deficit)/surplus (1.9) 0.1
-------------------------------------------------------------- ------------ -----------
Percentage of accrued benefits covered by the
assets at the valuation date 92% 105%
-------------------------------------------------------------- ------------ -----------
The valuations in 2019 and 2020 were determined using the following
mortality assumptions:
-------------------------------------------------------------------------------- -------
Life expectancy of a male currently aged 65 (years) 86 - 89
Life expectancy of a female currently aged 65 (years) 87 - 91
Life expectancy of a male currently aged 45 (years) 87 - 91
Life expectancy of a female currently aged 45 (years) 89 - 92
-------------------------------------------------------------------------------- -------
The discount rate assumptions used in the 2019 and 2020
valuations were directly based on prudent levels of expected
returns for the assets held by the schemes, reflecting the planned
investment strategies and maturity profiles of each scheme. The
discount rates are curves which provide a different rate for each
year into the future.
The inflation assumptions were derived using data from the Bank
of England which is based on the difference between the yields on
index-linked and fixed interest long-term government bonds. The
inflation assumption is a curve which provides a different rate for
each year into the future.
The funding valuations resulted in a significantly lower deficit
than under IAS 19, largely due to lower liabilities reflecting the
higher discount rate assumption. Under IAS 19, the discount rate
for accounting purposes is based on third-party AA corporate bond
yields whereas, for funding valuation purposes, the discount rate
is based on a prudent level of expected returns from the broader
and mixed types of investments reflected in the schemes' investment
strategies, which are expected overall to yield higher returns than
bonds.
The 2019 funding agreement is underpinned by a contingency plan,
which includes a commitment by the Group to a further GBP50m of
deficit funding in each of 2021 and 2022 into the Main Scheme prior
to the next triennial valuation in the event that the scheme
funding level were to fall below pre-determined parameters. In
addition, the Group would be required to pay GBP187m in respect of
the Main Scheme if the funding level were to fall significantly and
were to remain at or below those levels for nine months.
There have been no changes to the contributions or benefits, as
set out in the rules of the schemes, for pension scheme members as
a result of the new funding valuations.
The results of future triennial valuations and associated
funding requirements will be impacted by a number of factors,
including the future performance of investment markets and
anticipated members' longevity.
US valuations
The Group's US pension schemes are valued annually, with the
latest valuations performed as at 1 January 2021.
Contributions
Under the terms of the trust deeds of the UK schemes, the Group
is required to have a funding plan determined at the conclusion of
the triennial funding valuations.
Equity accounted investments make regular contributions to the
schemes in which they participate in line with the schedule of
contributions and are allocated a share of deficit funding
contributions.
In 2021, total employer contributions to the Group's pension
schemes were GBP324m (2020 GBP1,701m), including amounts funded by
equity accounted investments of GBP39m (2020 GBP133m), and included
approximately GBP90m (2020 GBP1,422m) of deficit recovery payments
in respect of the UK schemes and no contributions (2020 GBP70m) in
respect of the US schemes.
The Group does not plan to make any cash contributions to the US
pension schemes in 2022.
IAS 19 accounting
Principal actuarial assumptions
The assumptions used are estimates chosen from a range of
possible actuarial assumptions which, due to the long-term nature
of the obligation covered, may not necessarily occur in
practice.
UK US
------------------------- ----------------
2021 2020 2019 2021 2020 2019
---------------------------------------- ------- ------- ------- ---- ---- ----
Financial assumptions
Discount rate - past service (%) 1.9 1.4 2.1 2.8 2.4 3.1
Discount rate - future service (%) 1.9 1.6 2.2 2.8 2.4 3.1
Retail Prices Index (RPI) inflation
(%) 3.1 2.7 2.8 n/a n/a n/a
Rate of increase in salaries (%) 3.1 2.7 2.8 n/a n/a n/a
Rate of increase in deferred pensions
(%) 2.4/3.1 2.0/2.7 2.0/2.8 n/a n/a n/a
Rate of increase in pensions in payment 1.7 - 1.6 - 1.5 -
(%) 3.7 3.6 3.6 n/a n/a n/a
Demographic assumptions
Life expectancy of a male currently
aged 65 (years) 86 - 89 86 - 88 87 - 88 87 87 87
Life expectancy of a female currently
aged 65 (years) 88 - 90 88 - 90 88 - 90 89 89 89
Life expectancy of a male currently
aged 45 (years) 86 - 90 87 - 89 88 - 89 87 87 87
Life expectancy of a female currently
aged 45 (years) 89 - 91 89 - 91 89 - 91 89 88 89
---------------------------------------- ------- ------- ------- ---- ---- ----
Summary of movements in post-employment benefit obligations
US and
UK other Total
GBPm GBPm GBPm
------------------------------------------------------------ ------- ------ -------
Total net IAS 19 deficit at 1 January 2021 (4,362) (483) (4,845)
Actual return on assets excluding amounts included
in net interest expense 2,274 49 2,323
Decrease in liabilities due to changes in financial
assumptions 1,145 220 1,365
Decrease/(increase) in liabilities due to changes
in demographic assumptions 74 (8) 66
Experience losses (1,109) (8) (1,117)
Contributions in excess of service cost 64 (9) 55
Past service cost - plan amendments (3) - (3)
Net interest expense (56) (10) (66)
Transfer to other investments(1) - (56) (56)
Foreign exchange adjustments - 6 6
Movement in other schemes - (14) (14)
------------------------------------------------------------ ------- ------ -------
Total net IAS 19 deficit at 31 December 2021 (1,973) (313) (2,286)
Allocated to equity accounted investments 162 - 162
------------------------------------------------------------ ------- ------ -------
Group's share of net IAS 19 deficit excluding Group's
share of amounts allocated to equity accounted investments
at 31 December 2021 (1,811) (313) (2,124)
------------------------------------------------------------ ------- ------ -------
1. GBP56m of the US pension assets have been reclassified as
Other Investments. These relate to deferred compensation schemes
which hold assets associated with the US unfunded pension
obligation.
Sensitivity analysis
The sensitivity information has been derived using scenario
analysis from the actuarial assumptions as at 31 December 2021 and
keeping all other assumptions as set out above.
Financial assumptions
The estimated impact of changes in the discount rate and
inflation assumptions on the defined benefit pension obligation,
together with the estimated impact on scheme assets, is shown in
the table below. The estimated impact on scheme assets takes into
account the Group's risk management activities in respect of
interest rate and inflation risk. The sensitivity analysis on the
defined benefit obligation is measured on an IAS 19 accounting
basis and, therefore, does not reflect the natural hedging in the
discount rate used for funding valuation purposes.
(Increase)/decrease Increase/(decrease)
in pension obligation(1) in scheme assets(1)
GBPbn GBPbn
--------------------------------- ------------------------- --------------------
Discount rate:
0.1 percentage point increase 0.5 (0.3)
0.1 percentage point decrease (0.6) 0.3
0.5 percentage point increase 2.5 (1.5)
0.5 percentage point decrease (2.9) 1.7
Inflation:
0.1 percentage point increase (0.5) 0.2
0.1 percentage point decrease 0.5 (0.2)
0.5 percentage point increase (1.5) 1.1
0.5 percentage point decrease 1.5 (1.0)
1.0 percentage point increase (3.0) 2.4
1.0 percentage point decrease 2.9 (1.9)
--------------------------------- ------------------------- --------------------
1. Before allocation to equity accounted investments.
Demographic assumptions
Changes in the life expectancy assumption, including the benefit
of longevity swap arrangements, would have the following effect on
the total net IAS 19 deficit:
(Increase)/decrease
in net deficit(1)
GBPbn
--------------------- -------------------
Life expectancy:
One-year increase (1.4)
One-year decrease 1.4
--------------------- -------------------
1. Before allocation to equity accounted investments.
7. Equity dividends
2021 2020
GBPm GBPm
------------------------------------------------------ ----- -----
Interim 13.8p dividend per ordinary share paid in the
year in respect of year ended 31 December 2019 - 444
Final 14.3p dividend per ordinary share paid in the
year (2020 nil) 461 -
Interim 9.9p dividend per ordinary share paid in the
year (2020 9.4p) 316 302
777 746
------------------------------------------------------ ----- -----
After the balance sheet date, the directors proposed a final
dividend of 15.2p per ordinary share. The dividend, which is
subject to shareholder approval, will be paid on 1 June 2022 to
shareholders registered on 22 April 2022. The ex-dividend date is
21 April 2022.
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 11 May 2022.
8. Fair value measurement
Fair value of financial instruments
Certain of the Group's financial instruments are held at fair
value.
The fair value of a financial instrument is the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the balance
sheet date.
The fair values of financial instruments held at fair value have
been determined based on available market information at the
balance sheet date, and the valuation methodologies listed
below:
- the fair values of forward foreign exchange contracts are
calculated by discounting the contracted forward values and
translating at the appropriate balance sheet rates;
- the fair values of both interest rate and cross-currency swaps
are calculated by discounting expected future principal and
interest cash flows and translating at the appropriate balance
sheet rates; and
- the fair values of money market funds are calculated by
multiplying the net asset value per share by the investment held at
the balance sheet date.
Due to the variability of the valuation factors, the fair values
presented at 31 December may not be indicative of the amounts the
Group will realise in the future.
Fair value hierarchy
The fair value measurement hierarchy is as follows:
- Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;
- Level 2 - Inputs other than quoted prices included within
level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
- Level 3 - Inputs for the asset or liability that are not based
on observable market data (i.e. unobservable inputs).
Carrying amounts and fair values of certain financial
instruments
2021 2020
----------------- -----------------
Carrying Fair Carrying Fair
amount value amount value
GBPm GBPm GBPm GBPm
-------------------------------------------------- -------- ------- -------- -------
Financial instruments measured at fair value:
Non-current
Other investments at fair value through profit
and loss 76 76 - -
Other financial assets 305 305 248 248
Other financial liabilities (302) (302) (282) (282)
Current
Other financial assets 194 194 189 189
Money market funds 1,171 1,171 966 966
Other financial liabilities (214) (214) (181) (181)
-------------------------------------------------- -------- ------- -------- -------
Financial instruments not measured at fair
value:
Non-current
Loans (4,604) (5,045) (4,957) (5,737)
Current
Cash and cash equivalents (excluding money
market funds) 1,746 1,746 1,802 1,802
Loans and overdrafts (457) (462) (467) (479)
-------------------------------------------------- -------- ------- -------- -------
All of the financial assets and liabilities measured at fair
value are classified as level 2 using the fair value hierarchy,
except for money market funds, which are classified as level 1.
There were no transfers between levels during the year.
Financial assets and liabilities in the Group's Consolidated
balance sheet are either held at fair value or their carrying value
approximates to fair value, with the exception of loans, which are
held at amortised cost. The fair value of loans presented in the
table above is derived from market prices, classified as level 1
using the fair value hierarchy.
9. Financial risk management
Currency risk
The Group's objective is to reduce its exposure to transactional
volatility in earnings and cash flows from movements in foreign
currency exchange rates, mainly the US dollar, euro, Saudi riyal
and Australian dollar.
The Group is exposed to movements in foreign currency exchange
rates in respect of foreign currency denominated transactions. All
material firm transactional exposures are hedged using foreign
exchange forward contracts and the Group aims, where possible, to
apply cash flow hedge accounting to these transactions.
The Group is exposed to movements in foreign currency exchange
rates in respect of the translation of net assets and income
statements of foreign subsidiaries and equity accounted
investments. The Group does not hedge the translation effect of
exchange rate movements on the income statements or balance sheets
of foreign subsidiaries and equity accounted investments it regards
as long-term investments.
The estimated impact on foreign exchange gains and losses in net
finance costs of a ten cent movement in the closing sterling to US
dollar exchange rate on the retranslation of US dollar-denominated
bonds held by BAE Systems plc is approximately GBP203m (2020
GBP226m).
Credit risk
For trade receivables, contract receivables, amounts due from
equity accounted investments and finance lease receivables, the
Group measures a provision for expected credit losses at an amount
equal to lifetime expected credit losses, estimated by reference to
past experience and relevant forward-looking factors.
The Group's assessment is that credit risk in relation to
defence-related sales to government customers or subcontractors to
governments is extremely low as the probability of default is
insignificant; therefore the provision for expected credit losses
is immaterial in respect of receivables from these customers. For
all non-government commercial customers, the Group assesses
expected credit losses, including risk arising amid the COVID-19
pandemic; however, this is not considered material to the financial
statements. The Group considers that default has occurred when a
receivable is past 180 days overdue, because historical experience
indicates that these receivables are generally not recoverable. The
Group recognises a provision of 100% against all receivables over
180 days past due unless there is evidence that individual
receivables in this category are recoverable.
For contract receivables, amounts due from equity accounted
investments and finance lease receivables the expected credit loss
provision is immaterial as the probability of default is
insignificant.
Cash management
Cash flow forecasting is performed by the businesses on a
monthly basis. The Group monitors a rolling forecast of its
liquidity requirements to ensure that there is sufficient cash to
meet operational needs and maintain adequate headroom.
10. Related party transactions
Transactions with related parties occur in the normal course of
business, are priced on an arm's-length basis and settled on normal
trade terms. The more significant transactions are disclosed
below:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
----------------------------------- ------------ ------------
Sales to related parties 1,190 1,067
Purchases from related parties 586 831
----------------------------------- ------------ ------------
31 December 31 December
2021 2020
GBPm GBPm
----------------------------------- ------------ ------------
Amounts owed by related parties 34 69
Amounts owed to related parties(1) 1,137 1,379
----------------------------------- ------------ ------------
1. At 31 December 2021, GBP907m (2020 GBP967m) was owed by BAE
Systems plc and GBP230m (2020 GBP412m) by other Group
subsidiaries.
11. Acquisition of businesses
Businesses acquired during 2021
On 4 March 2021, the Group acquired 100% of the share capital of
Pulse Power and Measurement Limited for a consideration of GBP21m.
The provisional net assets acquired, including intangible assets
identified, have been valued at GBP11m, resulting in a provisional
goodwill of GBP10m.
On 14 September 2021, the Group acquired 100% of the share
capital of In-Space Missions Limited for a fair value consideration
of GBP15m. The provisional net assets acquired, including
intangible assets identified, have been valued at GBP5m, resulting
in a provisional goodwill of GBP10m.
Businesses acquired during 2020
All fair values provisionally disclosed in 2020 have been
finalised, with no change in the provisional values recognised.
On 2 May 2020, the Group completed the acquisition of the assets
and liabilities of Raytheon Technologies Corporation's Airborne
Tactical Radios business (Airborne Tactical Radios business), for
consideration of GBP216m. The acquisition augments the Group's
Electronic Systems portfolio in airborne communications with
broad-spectrum, multi-band, multi-channel radios that feature
robust anti-jamming and encryption capabilities.
On 31 July 2020, the Group completed the acquisition of the
assets and liabilities of the Collins Aerospace Military Global
Positioning System business (Military GPS business) from Raytheon
Technologies Corporation, for consideration of GBP1,472m. The
acquisition augments the Group's Electronic Systems portfolio,
adding technology that advances the Group's existing GPS and
precision-guided munitions capabilities.
On 19 August 2020, the Group completed the acquisition of
Techmodal Limited (Techmodal), a UK-based consultancy and digital
services company, for consideration of GBP38m. Techmodal has a
number of long-term contracts with the UK Ministry of Defence and
complements the Group's existing digital, data and technical
service capabilities.
The results and financial position of all three acquired
businesses have been consolidated from the date of acquisition.
Purchase consideration and fair value of net assets acquired
The fair values of the assets and liabilities acquired and the
consideration for all acquisitions in 2020 were as follows:
Airborne
Tactical
Radios Military
business GPS business Techmodal Total
GBPm GBPm GBPm GBPm
-------------------------------------- --------- ------------- --------- -----
Identifiable intangible assets 84 468 14 566
Property, plant and equipment 8 20 - 28
Right-of-use assets 3 9 - 12
Inventories 4 53 - 57
Trade, other and contract receivables 13 28 3 44
Cash and cash equivalents - - 5 5
Lease liabilities (3) (9) - (12)
Trade and other payables (8) (17) (4) (29)
Deferred tax - - (3) (3)
Provisions (3) (1) - (4)
-------------------------------------- --------- ------------- --------- -----
Net identifiable assets acquired 98 551 15 664
Goodwill arising 118 921 23 1,062
-------------------------------------- --------- ------------- --------- -----
Net assets acquired 216 1,472 38 1,726
-------------------------------------- --------- ------------- --------- -----
Satisfied by:
Cash 216 1,472 23 1,711
Contingent consideration - - 15 15
-------------------------------------- --------- ------------- --------- -----
Total consideration 216 1,472 38 1,726
-------------------------------------- --------- ------------- --------- -----
The contingent consideration due for Techmodal has been
finalised, and resulted in a gain being recognised in non-recurring
items of GBP6m.
The net outflow of cash in respect of the purchase of businesses
in 2020 was as follows:
Airborne
Tactical
Radios Military
business GPS business Techmodal Total
GBPm GBPm GBPm GBPm
-------------------------------------------- --------- ------------- --------- -----
Cash consideration 216 1,472 23 1,711
Cash and cash equivalents acquired - - (5) (5)
-------------------------------------------- --------- ------------- --------- -----
Net cash outflow in respect of the purchase
of businesses 216 1,472 18 1,706
-------------------------------------------- --------- ------------- --------- -----
The goodwill recognised on these acquisitions is primarily
attributable to expected synergies.
12. Business disposals
Business disposals during 2021
Advanced Electronics Company
In December 2020, the Group's Overhaul and Maintenance Company (OMC)
entered into a heads of terms for the sale of its 50% shareholding
in Advanced Electronics Company Limited (AEC) to Saudi Arabian Military
Industries, and was reported in the financial statements for the year
ending 31 December 2020 as assets held for sale. The sale was completed
on 23 February 2021. AEC was included in the Air segment.
The gain recognised on disposal was as follows: 2021
GBPm
---------------------------------------------------------- -----
Cash received or receivable:
Cash 182
Deferred consideration 32
----------------------------------------------------------- -----
Total disposal consideration 214
Carrying amount of net assets sold (see below) (91)
----------------------------------------------------------- -----
Gain on sale before tax and reclassification of foreign
currency translation reserve 123
Reclassification of foreign currency translation reserves 9
----------------------------------------------------------- -----
Gain on sale before tax 132
----------------------------------------------------------- -----
Attributable to:
Equity shareholders 69
Non-controlling interests 63
------------------------------ ---
132
----------------------------- ---
Net cash inflow arising on disposal:
Cash consideration received 193
Less: cash and cash equivalents disposed -
-------------------------------------------- ---
193
-------------------------------------------- ---
Of the total consideration receivable, GBP32m was deferred to be received
over the 18 months following disposal. GBP11m of this contingent consideration
was received in 2021 in relation to the sale of AEC, in addition to
the cash received on disposal. The gain on disposal has been included
in the profit for the period from continuing operations, as a component
of Other income, and recognised as a non-recurring item.
The Group's share of the net assets of AEC as at the date of disposal
was as follows: GBPm
------------------------------------- ----
Intangible assets including goodwill 16
Property, plant and equipment 8
Equity accounted investments 67
-------------------------------------- ----
Net assets disposed 91
-------------------------------------- ----
BAE Systems Rokar International
On 1 April 2021 BAE Systems agreed the sale of BAE Systems Rokar
International Limited (Rokar) for $31m (GBP22m) net of cash held by
Rokar. This resulted in consideration received of $47m (GBP34m), a
disposal of net assets of $12m (GBP8m), including $16m (GBP12m) of
cash, and a gain before tax on disposal of $35m (GBP26m) which has
been included in the profit for the period from continuing
operations as a component of Other income, and recognised as a
non-recurring item. Rokar was within the Electronic Systems
segment.
Business disposals during 2020
Silversky
The divestment of the Silversky business completed on 2 November
2020. Silversky was included in the Cyber & Intelligence
segment.
The loss recognised on the disposal of Silversky was as
follows:
2020
GBPm
------------------------------------- -----
Fair value of consideration received 14
Net assets disposed (51)
Expenses incurred on disposal (3)
Cumulative currency translation gain 35
-------------------------------------- -----
Loss on disposal (5)
-------------------------------------- -----
Net cash inflow arising on disposal:
Cash consideration received 10
Less: cash and cash equivalents disposed (5)
--------------------------------------------- ---
5
-------------------------------------------- ---
13. Events after the reporting period
There were no events after the reporting period which would
materially impact the balances reported in this Annual Report.
14. Annual General Meeting
This year's Annual General Meeting will be held on 5 May 2022.
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 2022.
15. Other information
The financial information for the year ended 31 December 2021
contained in this preliminary announcement was approved by the
Board on 23 February 2022. 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 2020 have been
delivered to the Registrar of Companies. Statutory accounts for the
year ended 31 December 2021 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 and Section 463 of the Companies
Act 2006 contain limits on the liability of the directors of BAE
Systems plc so that their liability is solely to BAE Systems
plc.
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END
FR TJMMTMTITTIT
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