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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Bae Systems Plc | LSE:BA. | London | Ordinary Share | GB0002634946 | ORD 2.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -3.00 | -0.26% | 1,155.50 | 1,152.00 | 1,153.00 | 1,160.50 | 1,149.50 | 1,160.00 | 4,019,741 | 16:35:15 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Aircraft | 23.23B | 1.86B | 0.6151 | 18.73 | 34.97B |
From Dec 2019 to Dec 2024
TIDMBA.
RNS Number : 7506A
BAE SYSTEMS PLC
28 March 2017
BAE Systems plc
Annual Report 2016
BAE Systems plc has today published its Annual Report and Accounts for the year ended 31 December 2016 ('Annual Report 2016'). The full document can be viewed on the Company's website at:
www.baesystems.com/investors
Copies of the Annual Report 2016 will be posted to those shareholders who have requested to receive communications from the Company in printed form on 31 March 2017.
In compliance with Section 9.6.1 of the Listing Rules, a copy of the Annual Report 2016 has also been submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM
This announcement contains regulated information issued in accordance with Section 6.3 of the Financial Services Authority's Disclosure and Transparency Rules and accordingly contains certain sections of the Annual Report 2016 in unedited full text. Page and chart references within the text of this announcement are references to pages and charts in the Annual Report 2016 that can be viewed as detailed above.
The financial information for the year ended 31 December 2016 contained in this announcement was approved by the Board on 22 February 2017. 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 2015 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2016 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.
The Annual Report 2016 contains the following responsibility statement:
Responsibility statement of the directors in respect of the Annual Report and financial statements
Each of the directors listed below confirms that to the best of their knowledge:
- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company, and the undertakings included in the consolidation taken as a whole; and
- the Strategic report and Directors' report, taken together, include a fair review of the development and performance of the business, and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
In addition, each of the directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Hot Features
Premium
Sir Roger Carr Chairman
--------------------- -------------------------------------
Ian King Chief Executive
--------------------- -------------------------------------
Jerry DeMuro President and Chief Executive Officer
of BAE Systems, Inc.
--------------------- -------------------------------------
Peter Lynas Group Finance Director
--------------------- -------------------------------------
Charles Woodburn Chief Operating Officer
--------------------- -------------------------------------
Elizabeth Corley Non-executive director
--------------------- -------------------------------------
Harriet Green Non-executive director
--------------------- -------------------------------------
Chris Grigg Non-executive director
--------------------- -------------------------------------
Paula Rosput Reynolds Non-executive director
--------------------- -------------------------------------
Nick Rose Non-executive director
--------------------- -------------------------------------
Ian Tyler Non-executive director
--------------------- -------------------------------------
On behalf of the Board
Sir Roger Carr
Chairman
22 February 2017
Chief Executive's review
"A good year for BAE Systems."
Ian King Chief Executive
2016 was a good year for BAE Systems. The Company has performed well despite economic and political uncertainties, delivering sales and order backlog growth. Governments in our major markets continue to prioritise defence and security with strong demand for our capabilities.
2016 performance
US
Following the two-year Bipartisan Budget Act signed in 2015, the defence market outlook in the US is improving with encouraging signs of a return to growth in defence budgets. We are also seeing the ramp up of production on a number of the Group's long-term programmes.
Our US electronics business continued to perform well, with strong programme execution and good order intake enhancing positions in the high-technology areas of electronic warfare, electro-optics and Intelligence, Surveillance and Reconnaissance. As a major supplier on the F-35 Lightning II combat aircraft programme, including the electronic warfare system, we are well positioned on the progressive increases in production output planned over the coming years to meet the requirements of US and international customers.
The Eagle Passive Active Warning Survivability System electronic warfare upgrade for US Air Force F-15 aircraft is progressing to its engineering and manufacturing development phase. The Advanced Precision Kill Weapon System (APKWS(TM)) laser-guided rocket is experiencing growing demand and, in October, the US Navy awarded a three-year Indefinite Delivery, Indefinite Quantity contract for Full-Rate Production.
Performance in the commercial electronics business continued to be good and our all-electric and hybrid power and propulsion business delivered growth.
The Group's US-based combat vehicles business is underpinned by the Armored Multi-Purpose Vehicle and M109A7 self--propelled howitzer contracts. The business is also experiencing US and international demand on amphibious programmes.
The US land business delivered good export order intake in the period on the back of contract awards on Assault Amphibious Vehicles to Japan, BvS10 military vehicles to Austria, CV90 combat vehicle upgrades for Sweden, and M109 and M113 upgrades to Brazil, and our weapon systems business was awarded contracts for gun systems for the Royal Navy Type 26 frigate. The contract for M777 howitzers to India under a US Foreign Military Sale was signed in January 2017.
FNSS, the Turkish land systems business in which BAE Systems holds a 49% interest, secured further domestic and international orders in the year, and the business holds an order book of $1.1bn (GBP0.9bn).
These long-term contracts, which offer opportunities in international markets, and our strong franchise in tracked vehicles make the land business well placed for a return to growth in the medium term.
BAE Systems is a leading supplier of ship repair services to the US Navy and continues to adjust its workforce and facilities to meet evolving demand. Our San Diego operations are expected to benefit from enhanced Asia-Pacific deployment over the mid-term, mitigating the anticipated reduction in activity in the East Coast facilities. Additional dry dock capacity for the San Diego operations became operational in February 2017.
Our US business's commercial shipbuilding contracts have been challenging in the year, with further charges taken. Six ships have now been accepted and production of the remaining two is maturing well with delivery and customer acceptance expected in 2017. The US business has not contracted for any more commercial ship-build.
Whilst market conditions remain highly competitive and continue to evolve, our US-based Intelligence & Security business has performed well, securing good 2016 order intake including a number of new multi-year service contracts.
UK
Our UK-based business continued to perform well, benefiting from good programme execution and stability in customer requirements following the UK Strategic Defence and Security Review in 2015.
Whilst the result of the 2016 EU referendum in the UK continues to create economic uncertainty, good progress has been achieved in implementing the Strategic Defence and Security Review through long-term contract awards and commitments.
In the air domain, Typhoon aircraft deliveries for the Royal Air Force and Royal Saudi Air Force continued alongside airframe sub--assembly deliveries to European partner nations. The Oman Typhoon programme is on track to commence deliveries in 2017. The contract to supply 28 Typhoon aircraft sets for the Kuwaiti Air Force is consistent with the medium-term production planning assumptions announced last year. We have received GBP1bn of order intake on this programme.
Export activity continues to be well supported by the UK government and, although there can be no certainty as to the timing of orders, discussions with current and prospective operators of the Typhoon aircraft continue to support the Group's expectations for additional Typhoon contract awards.
Typhoon's capabilities continue to expand, with the ongoing integration of the Captor E-Scan radar, Storm Shadow, Meteor and Brimstone 2 missiles, and development towards the Royal Air Force Centurion standard. A Typhoon support partnership arrangement, expected to be worth at least GBP2.1bn over a ten-year period, was signed in July.
UK-based production of rear fuselage assemblies for the F-35 Lightning II aircraft is increasing at the Group's advanced manufacturing facilities with much of the production investment already in place to achieve the higher production volumes.
In November, the F-35 Joint Programme Office announced that it had chosen the UK and Australia as significant repair hubs for the maintenance, repair, overhaul and upgrade of F-35 Lightning II avionics and components. These repair hub assignments will support the growing global fleet until 2025 after which the UK and Australia will undertake repairs for the European and Pacific fleets, respectively. BAE Systems plays a leading role in both the UK and Australia as we bring our strong track record of working alongside our international customers and industry partners to deliver innovative and cost-effective sustainment solutions.
A long-term Hawk support contract in the UK was announced in the year and support was maintained to the Indian Hawk programme with the supply of materiel and engineering services.
The unmanned air systems activity benefited from the announcement by the UK and French governments of a new EUR2bn (GBP1.7bn) project to build unmanned combat air system demonstrators following a successful joint feasibility study.
In Turkey, following a pre-contract study phase between BAE Systems and Turkish Aerospace Industries, we have signed a heads of agreement to collaborate on the first design and development phase of an indigenous fifth-generation fighter jet for the Turkish Air Force. When on contract, this will have a value in excess of GBP100m.
In the maritime domain, submarine activity is increasing with the Astute and Dreadnought Class submarines now both in production. The first three Astute Class submarines are in operational service with the Royal Navy and the remaining four boats in build.
The UK government's commitment to the Dreadnought programme was endorsed by Parliament during the year. Funding was received for the continued design, initial manufacture of the first boat, material commitment and facilities investment for the major redevelopment of the Barrow site.
The Ministry of Defence, BAE Systems and Rolls-Royce have signed a heads of terms to set up a Dreadnought Build Alliance documenting the UK government and industry's commitment to the delivery of the Dreadnought Class submarine programme, the replacement for the Royal Navy's Vanguard Class submarine fleet, and setting out an organisational and managerial structure and series of commercial principles necessary to deliver it.
The Queen Elizabeth Class aircraft carrier programme progresses with assembly of the second ship well under way. Preparations for sea trials on the first of class vessel in 2017 are maturing and activity to support entry into service is expanding.
In preparation for the manufacturing phase, an extension to the Type 26 frigate demonstration phase contract was secured in March and, under a heads of terms signed in November, BAE Systems and the Ministry of Defence reached agreement on the intention to build eight Type 26 ships on the Clyde, with a cut-steel date in summer 2017. Two additional River Class Offshore Patrol Vessels were also contracted for in December. Build of the first three Offshore Patrol Vessels is progressing well, with sea trials for the first ship planned in the second quarter of 2017.
International
In the 50th year of its presence in Saudi Arabia, BAE Systems continues to address current and potential new requirements as part of the long-standing agreements between the UK government and the Kingdom. Our In-Kingdom Industrial Participation programme also continues apace.
An agreement has been reached with the Saudi Arabian government for BAE Systems to continue to provide support services to the Royal Saudi Air Force and Royal Saudi Naval Forces under the Saudi British Defence Co-operation Programme for a further five years.
On the Salam Typhoon programme, the remaining four of the contracted 72 aircraft will be delivered in 2017. Deliveries have commenced under the Hawk aircraft contract signed in 2012. The Royal Saudi Air Force has achieved high utilisation and aircraft availability across its Typhoon, Tornado and training aircraft fleets.
In Australia, the business is stable. The rationalisation of the Williamstown shipbuilding facility and cost-reduction actions taken across the wider business in 2015 are complete. Long-term sustainment and upgrade contracts were received for the Anzac Class frigates and F-35 Lightning II aircraft.
In India, BAE Systems has a long-standing relationship with Hindustan Aeronautics Limited (HAL). Delivery of the second batch of HAL-built Hawk aircraft was completed in the year and an order for a further batch from the Indian Air Force is being negotiated.
In November, the US and Indian governments signed a Letter of Agreement for the Foreign Military Sale of 145 M777 lightweight howitzers and, in January 2017, we received the $542m (GBP439m) contract from the US government to supply these howitzers to the Indian Army. As previously announced, Mahindra & Mahindra will be our supplier to establish an assembly, integration and test facility in India as further support for the 'Make in India' initiative.
The MBDA joint venture won significant order intake on air, maritime and land platforms in the year, including a number of contracts supporting the UK's complex weapons requirements and significant export awards. Building on its already large order book, good growth in MBDA is expected over the medium term.
Cyber security
Applied Intelligence achieved double-digit order intake and sales growth. Ongoing investment in engineering capabilities, product development and marketing costs, all expensed, continues to support the future growth profile for the business.
Cyber security is becoming an important part of government security and a core element of stewardship for commercial enterprises.
Balance sheet and capital allocation
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. Consistent with this approach, 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 and to make accelerated returns of capital to shareholders when the balance sheet allows. Investment in value-enhancing acquisitions will be considered where market conditions are right and where they deliver on the Group's strategy.
Pension schemes
The Group's share of the pre-tax accounting net pension deficit has increased by GBP1.6bn from 31 December 2015 to GBP6.1bn mainly reflecting an increase in liabilities due to a 1.2 percentage point reduction in the real discount rate to -0.5% in the UK, partly offset by returns on scheme assets.
The next UK triennial funding reviews will commence in April 2017 and, in conjunction with the trustees of the schemes and other stakeholders, the Group will be looking at various options with a focus on the longer-term view.
Responsible business
We continue to build a culture where our senior leaders and employees are empowered to make the right decisions and to know where to go for help. During 2016, we rolled out further ethics training across the Group to support employees.
The safety of our employees, and anybody who works on, or visits, our sites, remains a key priority. We provide training and tools to employees to help them understand the importance of a safe workplace. There was a 21% reduction in the Recordable Accident Rate in 2016, representing an improvement against target. In addition, there was a 26% reduction in the total number of major injuries recorded in the year as we continued to focus on reducing risk and embedding safety culture to drive improvement.
Attracting and retaining talented employees helps us to sustain our competitive edge. We encourage our employees to reach their full potential within a diverse and inclusive work environment. We have programmes in place across the business to support strategic workforce planning, career development and retention, as well as to improve diversity and inclusion.
Summary
Our business benefits from a large order backlog, with established positions on long-term programmes in the US, UK, Saudi Arabia and Australia. Our clear and well-defined strategy has guided us through a period of difficult market conditions. As the overall business environment in our major markets improves and through execution of our strategy, we are well placed to maximise opportunities, deal with the challenges and continue to generate attractive shareholder returns.
Ian King Chief Executive
Extract from
Chairman's letter
Ensuring we have a continued supply of talent is an essential element of long-term business planning - as is the need to manage organised succession at all levels of the business. In this respect, since becoming Chairman, it has been necessary to plan for the retirement of Ian King who became Chief Executive over eight years ago.
In February 2017, we announced that Ian will retire from the Company on 30 June 2017, after a long and distinguished career of some 40 years in the defence industry. Ian will retire leaving a legacy of disciplined operational and financial performance, ethical behaviour, a burgeoning order book, a track record of delivering shareholder value and a strong leadership team. When the time comes later this year, he will leave with our thanks and best wishes for the future.
The Board also announced that Charles Woodburn, Chief Operating Officer, will succeed Ian as Chief Executive with effect from 1 July 2017. Since joining the Company in May 2016, Charles has made an important contribution, bringing impeccable engineering credentials, broad international experience and fresh perspectives to build on our existing strengths. In his new role, he will build on an enviable inheritance to create an exciting future for the Group.
We were pleased to welcome Elizabeth Corley as a non-executive director on 1 February 2016. Her appointment has further strengthened and deepened the expertise and experience of our board of directors.
In view of the Group's good performance and future prospects, the Board has recommended a final dividend of 12.7p per share for a total of 21.3p per share for the full year, an increase of 2% compared to 2015. Subject to shareholder approval at the May 2017 Annual General Meeting, the dividend will be paid on 1 June 2017 to holders of ordinary shares registered on 21 April 2017.
Financial review
We monitor the underlying financial performance of the Group using the alternative performance measures defined on page 6. These measures are not defined in IFRS(1) and, therefore, are considered to be non--GAAP(2) measures. Accordingly, the relevant IFRS(1) measures are also presented where appropriate.
P06-07 Alternative performance measure definitions
Income statement
2016 2015
Financial performance measures as defined by the Group GBPm GBPm
------------------------------------------------------- ----- ------ ------
Sales KPI 19,020 17,904
Underlying EBITA KPI 1,905 1,683
Return on sales 10.0% 9.4%
-------------------------------------------------------------- ------ ------
Financial performance measures defined in IFRS(1) GBPm GBPm
-------------------------------------------------- ------ ------
Revenue 17,790 16,787
Operating profit 1,742 1,502
Return on revenue 9.8% 8.9%
--------------------------------------------------- ------ ------
Reconciliation of sales to revenue GBPm GBPm
------------------------------------------ ----- ------- -------
Sales KPI 19,020 17,904
Deduct Share of sales by equity accounted
investments (2,427) (2,719)
Add Sales to equity accounted investments 1,197 1,602
------------------------------------------------- ------- -------
Revenue 17,790 16,787
------------------------------------------------- ------- -------
Reconciliation of underlying EBITA to operating profit GBPm GBPm
----------------------------------------------------------- ----- ----- -----
Underlying EBITA KPI 1,905 1,683
Non-recurring items (12) 26
Amortisation of intangible assets (87) (108)
Impairment of intangible assets - (78)
Financial (expense)/income of equity accounted investments (28) 3
Taxation expense of equity accounted investments (36) (24)
------------------------------------------------------------------ ----- -----
Operating profit 1,742 1,502
Net finance costs (591) (412)
Taxation expense (213) (147)
------------------------------------------------------------------ ----- -----
Profit for the year 938 943
------------------------------------------------------------------ ----- -----
P128 Note 1 to the Group accounts
Exchange rates
Average 2016 2015 -------- ----- ----- GBP/$ 1.354 1.528 --------- ----- ----- GBP/EUR 1.223 1.377 --------- ----- ----- GBP/A$ 1.823 2.036 --------- ----- ----- Sensitivity analysis ---------------------------------------------------------------- ---- Estimated impact on sales of a ten cent movement in the average exchange rate GBPm ---------------------------------------------------------------- ---- $ 500 ----------------------------------------------------------------- ---- EUR 60 ----------------------------------------------------------------- ---- A$ 30 ----------------------------------------------------------------- ----
Income statement
Sales increased by GBP1.1bn to GBP19.0bn (2015 GBP17.9bn), almost all of which was due to exchange translation.
Underlying EBITA increased by GBP222m to GBP1,905m (2015 GBP1,683m), giving a return on sales of 10.0% (2015 9.4%). There was an exchange translation benefit of GBP96m. Growth on a constant currency basis was at 7%.
Revenue increased by GBP1.0bn to GBP17.8bn (2015 GBP16.8bn).
Operating profit increased by GBP240m to GBP1,742m (2015 GBP1,502m), giving a return on revenue of 9.8% (2015 8.9%). There was an exchange translation benefit of GBP86m.
Non-recurring items represents an impairment in respect of the BAE Systems San Francisco Ship Repair business sold in January 2017. Non-recurring items in 2015 of GBP26m included research and development expenditure credits relating to 2013 and 2014 (GBP50m), partly offset by a loss on the disposal of the Group's 75% shareholding in the Land Systems South Africa business (GBP24m).
Amortisation of intangible assets reduced to GBP87m (2015 GBP108m) due to previously acquired intangible assets now fully amortised.
Impairment of intangible assets in 2015 mainly comprised the impairment of goodwill in the US Intelligence & Security business reflecting lower business growth assumptions.
Financial expense of equity accounted investments is GBP28m (2015 income GBP3m). There was a large gain in 2015 on the translation of foreign currency assets in Air Astana.
Net finance costs were GBP591m (2015 GBP412m). The underlying interest charge, excluding pension accounting, and fair value and foreign exchange adjustments on financial instruments and investments, increased to GBP245m (2015 GBP191m) primarily reflecting interest on the bonds issued in December 2015, incremental charges relating to net present value adjustments on the discounting of long-term liability provisions and adverse exchange translation of interest charges on US dollar-denominated borrowings. Net interest expense on the Group's pension deficit was lower at GBP169m (2015 GBP192m) mainly reflecting the lower 2015 closing deficit. Fair value and foreign exchange adjustments increased to GBP177m (2015 GBP29m) on adverse exchange translation of US dollar-denominated bonds.
Taxation expense, including equity accounted investments, of GBP249m (2015 GBP171m) reflects the Group's underlying effective tax rate for the year of 21%. The calculation of the underlying effective tax rate is shown in note 6 to the Group accounts on page 136. The underlying effective tax rate for 2017 is expected to increase slightly from 21% to around 22%, with the final rate dependent on the geographical mix of profits.
Looking beyond 2017, the effective tax rate will depend principally on whether there are any changes in tax legislation in the Group's most significant countries of operation, the geographical mix of profits and the resolution of open issues. With the political change in the US, proposals to significantly reform the corporate tax system are being considered. The Group will actively monitor any developments and evaluate their potential impact. The Group does not expect the future rate to be materially impacted by the changes to the international tax landscape resulting from the package of measures developed under the OECD/G20 Base Erosion and Profit Shifting project and the investigations and proposals of the European Commission. However, the Group will keep these under review.
1. International Financial Reporting Standards.
2. Generally Accepted Accounting Principles.
3. Including share of equity accounted investments.
4. Re--presented to reclassify interest paid from operating to investing activities.
Earnings per share
Underlying earnings per share for the year was 40.3p (2015 40.2p). The prior year included a 4.3p per share benefit from tax provision releases. The major movements in underlying earnings per share are shown in the bridge chart below.
Basic earnings per share was 28.8p (2015 29.0p).
Earnings per share
Financial performance measures as defined by the Group 2016 2015 ------------------------------------------------------- ---- --------- --------- Underlying earnings GBP1,277m GBP1,270m Underlying earnings per share KPI 40.3p 40.2p ------------------------------------------------------- ---- --------- --------- Financial performance measures defined in IFRS(1) -------------------------------------------------------- ------- ------- Profit for the year attributable to equity shareholders GBP913m GBP918m Basic earnings per share 28.8p 29.0p --------------------------------------------------------- ------- ------- Reconciliation of underlying earnings to profit for the year attributable to equity shareholders GBPm GBPm -------------------------------------------- ----- ----- Underlying earnings 1,277 1,270 Non-recurring items, post tax (9) (19) Amortisation and impairment of intangible assets, post tax (69) (88) Impairment of goodwill - (75) Net interest expense on retirement
benefit obligations, post tax (140) (158) Fair value and foreign exchange adjustments on financial instruments and investments, post tax (146) (12) --------------------------------------------- ----- ----- Profit for the year attributable to equity shareholders 913 918 Non-controlling interests 25 25 --------------------------------------------- ----- ----- Profit for the year 938 943 --------------------------------------------- ----- -----
P138 Note 7 to the Group accounts
Cash flow
2016 2015(3)
Financial performance measures as defined by the Group GBPm GBPm
------------------------------------------------------- ---- ----- -------
Operating business cash flow KPI 1,004 681
------------------------------------------------------- ---- ----- -------
Financial performance measures defined in IFRS(1) GBPm GBPm
-------------------------------------------------- ----- ----
Net cash flow from operating activities 1,229 808
--------------------------------------------------- ----- ----
Reconciliation from operating business
cash flow to net cash flow from operating
activities GBPm GBPm
------------------------------------------- ---- ------- -------
Operating business cash flow KPI 1,004 681
Add back Net capital expenditure and
financial investment 450 284
Deduct Dividends received from equity
accounted investments (38) (41)
Deduct Taxation (187) (116)
------------------------------------------------- ------- -------
Net cash flow from operating activities 1,229 808
------------------------------------------------- ------- -------
Net capital expenditure and financial
investment (450) (284)
Dividends received from equity accounted
investments 38 41
Net interest paid (200) (173)
Acquisitions and disposals 6 16
------------------------------------------------- ------- -------
Net cash flow from investing activities (606) (400)
------------------------------------------------- ------- -------
Net sale of own shares 3 1
Equity dividends paid (670) (655)
Dividends paid to non-controlling
interests (24) (40)
Cash flow from matured derivative
financial instruments 480 12
Movement in cash collateral 32 3
Net cash flow from loans (286) 490
------------------------------------------------- ------- -------
Net cash flow from financing activities (465) (189)
------------------------------------------------- ------- -------
Net increase in cash and cash equivalents 158 219
Add back/(deduct) Net cash flow from
loans 286 (490)
Deduct Cash classified as held for
sale (2) -
Foreign exchange translation (621) (165)
Other non-cash movements 59 46
------------------------------------------------- ------- -------
Increase in net debt (120) (390)
Opening net debt (1,422) (1,032)
------------------------------------------------- ------- -------
Net debt KPI (1,542) (1,422)
------------------------------------------- ---- ------- -------
P167 and P168 Note 23 and 24 to the Group accounts
Cash flow
Operating business cash flow was GBP1,004m (2015 GBP681m), which includes cash contributions in respect of pension deficit funding, over and above service costs, for the UK and US schemes totalling GBP253m (2015 GBP274m).
Receipts aggregating to approximately GBP250m, expected in 2017 on the Omani Typhoon programme, Saudi support and MBDA's Qatar contract, were received in 2016.
Major advances received in 2012 on the Omani Typhoon and Hawk order, and the Saudi training aircraft contract, were consumed. Advances were also utilised in the year on European Typhoon production. Costs are being incurred against provisions created in previous years, primarily on the US commercial shipbuilding programmes.
Net cash flow from operating activities was GBP1,229m (2015 GBP808m).
Taxation payments increased to GBP187m (2015 GBP116m) primarily reflecting higher payments in the US due to higher US taxable profits and timing differences.
Net capital expenditure and financial investment was GBP450m (2015 GBP284m) largely reflecting lower proceeds from sale of property, plant and equipment, and investment property of GBP45m (2015 GBP136m). Purchases of property, plant and equipment, and investment property were GBP49m higher primarily reflecting investment in manufacturing facilities at Electronic Systems.
Dividends received from equity accounted investments of GBP38m (2015 GBP41m) is primarily receipts from MBDA and FNSS.
Net interest paid was GBP27m higher at GBP200m (2015 GBP173m) primarily for interest on the bonds issued in December 2015 and adverse exchange translation of interest on US dollar-denominated borrowings.
The cash inflow in respect of acquisitions and disposals in 2016 of GBP6m reflects the sale of a 4.1% shareholding in a subsidiary company in Saudi Arabia. In 2015, the net cash inflow of GBP16m included GBP21m received from the sale of the Group's 75% shareholding in the Land Systems South Africa business, less GBP5m paid for the acquisition of Eclipse Electronic Systems, Inc.
Equity dividends paid in 2016 represents the 2015 final (GBP397m) and 2016 interim (GBP273m) dividends.
Dividends paid to non-controlling interests reduced to GBP24m (2015 GBP40m). An increased dividend was paid in 2015 by the Group's 75%-owned South African business prior to disposal.
As a consequence of movements in US dollar and euro exchange rates, there was a cash inflow from matured derivative financial instruments of GBP480m (2015 GBP12m) from rolling hedges on balances with the Group's subsidiaries and equity accounted investments. The inflow as a result of hedging cash loaned internally, from the US to the UK business, partially offsets the foreign exchange translation on the Group's external US dollar-denominated borrowing (see below).
Net cash flow from loans represents repayment of a $350m (GBP286m) 3.5% bond at maturity in October. In 2015, BAE Systems issued $1.5bn (GBP971m) of bonds in the US capital market and repaid a $750m (GBP481m) 5.2% bond at maturity.
Foreign exchange translation, which primarily arises in respect of the Group's US dollar-denominated borrowing, is partially offset by the cash inflow from matured derivative financial instruments (see above).
Orders
Order intake(2) increased by GBP7.5bn to GBP22,443m (2015 GBP14,921m). Major awards in the year included GBP2.1bn on the ten-year UK Typhoon support contract and initial order intake on the five-year Saudi support renewal.
Order backlog(2) increased by GBP5.2bn to GBP42.0bn (2015 GBP36.8bn). Exchange translation added GBP2.6bn compared with the prior year. The major movements in order backlog are shown in the bridge chart below.
Orders
Financial performance measures as defined by the Group 2016 2015 ------------------------------------------------------ --- ---------- ---------- Order intake(2) KPI GBP22,443m GBP14,921m Order backlog(2) GBP42.0bn GBP36.8bn ------------------------------------------------------ --- ---------- ----------
1. International Financial Reporting Standards.
2. Including share of equity accounted investments.
3. Re-presented to reclassify interest paid from operating to investing activities.
Balance sheet
2016 2015
Summarised balance sheet GBPm GBPm
------------------------------------------------------------ ---- ------- -------
Intangible assets 11,264 10,117
Property, plant and equipment, and investment property(1) 1,999 1,772
Equity accounted investments and other investments 305 256
Working capital(1) (3,564) (3,850)
Group's share of the net IAS 19 pension deficit (see below) (6,054) (4,501)
Net tax assets and liabilities 935 661
Net other financial assets and liabilities 121 (43)
Net debt KPI (1,542) (1,422)
Net assets held for sale - 12
------------------------------------------------------------------ ------- -------
Net assets 3,464 3,002
------------------------------------------------------------------ ------- -------
1. Funding received from the UK government for property, plant and equipment at Barrow-in-Furness, UK, relating to the Dreadnought submarine programme included in working capital in the Consolidated balance sheet is presented here in property, plant and equipment, and investment property.
Net IAS 19 pension deficit GBPm GBPm ------------------------------------------------------------ ----- ----- Group's share of the net IAS 19 pension deficit (see above) 6,054 4,501 ------------------------------------------------------------- ----- ----- Add back Amounts allocated to equity accounted investments 516 1,053 ------------------------------------------------------------- ----- ----- Net IAS 19 pension deficit 6,570 5,554 ------------------------------------------------------------- ----- ----- Components of net debt GBPm GBPm ---------------------------------------------------- ----- ------- ------- Cash and cash equivalents 2,769 2,537 Debt-related derivative financial instrument assets 114 53 Loans - non-current (4,425) (3,775) Loans and overdrafts - current - (237) ----------------------------------------------------------- ------- ------- Net debt KPI (1,542) (1,422) ---------------------------------------------------- ----- ------- -------
Exchange rates
Year end 2016 2015 --------- ----- ----- GBP/$ 1.236 1.474 ---------- ----- ----- GBP/EUR 1.172 1.357 ---------- ----- ----- GBP/A$ 1.707 2.027 ---------- ----- -----
Balance sheet
The GBP1.2bn increase in intangible assets to GBP11.3bn (2015 GBP10.1bn) mainly reflects exchange translation.
Property, plant and equipment, and investment property increased to GBP2.0bn (2015 GBP1.8bn), including GBP167m of exchange translation.
Equity accounted investments and other investments increased to GBP305m (2015 GBP256m) reflecting the Group's share of profit for the year (GBP90m) less dividends received (GBP38m). Exchange translation was GBP52m. The increased share of pension deficit was GBP66m.
The GBP1.6bn increase in the Group's share of the net IAS 19 pension deficit mainly reflects an increase in liabilities due to a 1.2 percentage point decrease in the real discount rate to -0.5% in the UK, partly offset by returns on scheme assets. The major movements in the net pension deficit are shown in the bridge chart opposite.
On 1 April 2016, a separate Airbus section of the BAE Systems Pension Scheme (Main Scheme) was created, reducing the total net IAS 19, Employee Benefits, deficit, with a corresponding reduction in the allocation to equity accounted investments.
Details of the Group's pension schemes are provided in note 20 to the Group accounts on page 155.
A net deferred tax asset of GBP1.2bn (2015 GBP0.9bn) relating to the Group's pension deficit is included within net tax assets and liabilities.
There was a GBP0.3bn increase in working capital mainly reflecting a net reduction in advance contract funding and utilisation of provisions.
The assets and liabilities of the San Francisco ship repair business sold in January 2017, both totalling GBP2m, are classified as held for sale at 31 December 2016. The Group no longer expects to complete the disposal of Aircraft Accessories and Components Company and, accordingly, has ceased classifying it as held for sale (2015 GBP12m).
The Group's net debt at 31 December 2016 is GBP1,542m, a net increase of GBP120m from the net debt position of GBP1,422m at the start of the year. A $350m (GBP286m) 3.5% bond was repaid at maturity in October. There are no further material debt maturities before 2019. The maturity of the Group's borrowings is shown in the chart opposite.
Cash and cash equivalents of GBP2,769m (2015 GBP2,537m) are held primarily for the repayment of debt securities, pension deficit funding, payment of the 2016 final dividend and management of working capital.
Critical accounting policies
Certain of the Group's significant accounting policies are considered by the directors to be critical because of the level of complexity, judgement or estimation involved in their application and their impact on the consolidated financial statements:
Revenue and profit recognition
Revenue GBP17.8bn (year ended 31 December 2016)
See note 1 to the Group accounts
----------------------------------------------- ----------------------------------------------------------------
Carrying value of intangible assets
Intangible assets GBP11.3bn (at 31 December 2016) See note 8 to the Group accounts
----------------------------------------------- ----------------------------------------------------------------
Valuation of retirement benefit obligations
Group's share of the net IAS 19 pension deficit GBP6.1bn (at 31 December 2016) See note 20 to the Group accounts
----------------------------------------------- ----------------------------------------------------------------
In addition to the critical accounting policies, management exercises judgement in applying the Group's accounting policies in respect of tax provisions and deferred tax assets.
P122-123 For more information
Capital
Objectives
Maintain the Group's investment grade credit rating and ensure operating flexibility, whilst:
- meeting its pension obligations; - pursuing organic investment opportunities;
- paying dividends in line with the Group's policy of long-term sustainable cover of around two times underlying earnings;
- making accelerated returns of capital to shareholders when the balance sheet allows and when the return from doing so is in excess of the Group's Weighted Average Cost of Capital; and
- investing in value-enhancing acquisitions, where market conditions are right and where they deliver on the Group's strategy.
Policies
The Group funds its operations through a mixture of equity funding and debt financing, including bank and capital market borrowings.
The capital structure of the Group reflects the judgement of the directors of an appropriate balance of funding required. Three credit rating agencies publish credit ratings for the Group:
Agency Rating Outlook Category ---------------------------------- ------ ------- ---------------- Moody's Investors Service Baa2 Stable Investment grade ---------------------------------- ------ ------- ---------------- Standard & Poor's Ratings Services BBB Stable Investment grade ---------------------------------- ------ ------- ---------------- Fitch Ratings BBB Stable Investment grade ---------------------------------- ------ ------- ----------------
P165 Note 22 to the Group accounts
Dividends
As part of the Group's capital allocation policy (see above), the Group plans to pay dividends in line with its policy of long-term sustainable cover of around two times underlying earnings.
The Board has recommended a final dividend of 12.7p per share making a total of 21.3p per share for the year, an increase of 2% over 2015. At this level, the annual dividend is covered 1.9 times. Subject to shareholder approval at the 2017 Annual General Meeting, the dividend will be paid on 1 June 2017 to holders of ordinary shares registered on 21 April 2017. The ex-dividend date is 20 April 2017.
At 31 December 2016, the Company had retained earnings of GBP1.9bn (2015 GBP2.0bn), the non-distributable portion of which is GBP354m (2015 GBP343m) (see page 180). Total external dividends relating to 2016 are GBP676m (2015 GBP663m), including the interim dividend paid during the year of GBP273m (2015 GBP266m) and the final dividend proposed of approximately GBP403m (2015 GBP397m). On an annual basis, the Company receives dividends from its subsidiaries to increase further its distributable reserves and, accordingly, the Company expects to have sufficient distributable reserves to support its dividend policy.
The Group's dividend policy is underpinned by its viability and going concern statements (see page 71).
Treasury
The Group's treasury activities are overseen by the Treasury Review Management Committee (TRMC). Two executive directors are members of the TRMC, including the Group Finance Director who chairs the Committee. The TRMC also has representatives with legal and tax expertise. The Group operates a centralised treasury department that is accountable to the TRMC for managing treasury activities in accordance with the treasury policies approved by the Board.
Objectives/policies
Net debt
Maintain a balance between the continuity, flexibility and cost of debt funding through the use of borrowings from a range of markets with a range of maturities, currencies and interest rates, reflecting the Group's risk profile.
- Material borrowings are arranged by the central treasury department and funds raised are lent onward to operating subsidiaries as required.
Interest rates
Manage the exposure to interest rate fluctuations on borrowings through varying the proportion of fixed rate debt relative to floating rate debt with derivative instruments, including interest rate and cross-currency swaps.
- A minimum of 50% and a maximum of 90% of gross debt is maintained at fixed interest rates.
Liquidity
Maintain adequate undrawn committed borrowing facilities.
- An undrawn committed Revolving Credit Facility of GBP2bn contracted to December 2018 and GBP1.9bn contracted from December 2018 to December 2020 is available to meet expected general corporate funding requirements.
Monitor and control counterparty credit risk and credit limit utilisation.
- The Group adopts a conservative approach to the investment of its surplus cash. It is deposited with financial institutions with the strongest credit ratings for short periods.
Currency
Reduce the Group's exposure to transactional volatility in earnings and cash flows from movements in foreign currency exchange rates.
- All material firm transactional exposures are hedged.
- 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.
P170 Note 26 to the Group accounts
Tax strategy
The Group's tax strategy is to:
- ensure compliance with all applicable tax laws and regulations; and
- manage the Group's tax expense in a way that is consistent with its values and its legal obligations in all relevant jurisdictions.
The Group promotes collaborative professional working with tax authorities in order to build open, transparent and trusted relationships. As part of this, the Group engages in open and early dialogue to discuss tax planning, strategy, risks and significant transactions, and discloses any significant uncertainties in relation to tax matters. Queries and information requests by tax authorities are responded to in a timely fashion and the Group ensures that tax authorities are kept informed about how issues are progressing. The Group seeks to resolve issues in real time and before returns are filed where possible. Fair, accurate and timely disclosures are made in tax returns, reports and documents that the Group files with, or submits to, tax authorities. Where disagreements over tax arise, the Group works proactively to seek to resolve all issues by agreement (where possible) and reach reasonable solutions. In the UK, the Group is subject to an annual risk assessment by HM Revenue & Customs and strives to achieve as low a risk rating as can be achieved by a group of BAE Systems' size and complexity.
Whilst the Group aims to maximise the tax efficiency of its business transactions, it does not use structures in its tax planning that are contrary to the intentions of the relevant legislature. The Group interprets relevant tax laws in a reasonable way and ensures that transactions are structured in a way that is consistent with a relationship of co-operative compliance with tax authorities. It also actively considers the implications of any planning for the Group's wider corporate reputation.
The Group is open and transparent with regard to decision-making, governance and tax planning in its business, keeping tax authorities informed of who has responsibility, how decisions are reached, how the business is structured and where different parts of the business are located.
BAE Systems operates internationally and is subject to tax in many different jurisdictions. The Group employs professional tax managers and takes appropriate advice from reputable professional firms. The Group is routinely subject to tax audits and reviews which can take a considerable period of time to conclude. Provision is made for known issues based on management's interpretation of country-specific legislation and the likely outcome of negotiations or litigation. The assessment and management of tax risks are regularly reviewed by the Audit Committee, as is the Group's tax strategy.
Arm's-length principles are applied in the pricing of all intra-group transactions of goods and services in
accordance with Organisation for Economic Co-operation and Development guidelines. Where appropriate,
the Group engages with governments in relation to proposed legislation and tax policy. The Group endorses
the statement of tax principles issued by the Confederation of British Industry in May 2013
(www.cbi.org.uk/cbi-prod/assets/File/pdf/statement-of-tax-principles.pdf).
P135 Note 6 to the Group accounts
Chart, note and page references used above refer to the Annual Report 2016 that can be viewed on the Company's website.
Principal risks
Risks are identified based on the likelihood of occurrence and the potential impact on the Group. The Group's principal risks are identified below, together with a description of how we mitigate those risks.
1. Defence spending
The Group is dependent on defence spending.
----------------------------------------------------------------------------------------------------------------------
Description Impact Mitigation
--------------------------- ---------------------------- -----------------------------------------------------------
In 2016, 91% of the Group's Lower defence spending by The business is geographically spread across US, UK and
sales were defence-related. the Group's major customers international defence markets:
Defence spending by could have a material * In the US, following the two-year Bipartisan Budget
governments can fluctuate adverse effect Act signed in 2015, the defence market outlook is
depending on political on the Group's future improving with encouraging signs of a return to
considerations, budgetary results and financial growth in defence budgets.
constraints, specific condition.
threats and movements in
the international oil * In the UK, the Spending Review in 2015 outlined a
price. 3.1% real-term increase to the defence budget by 2020
as part of the commitment to spend 2% of Gross
There have been constraints Domestic Product on defence.
on government expenditure
in a number of the Group's
principal * In Saudi Arabia, regional tensions continue to
markets, in particular in dictate that defence remains a high priority.
the US and UK. The results
of the 2016 elections in
the US and EU The diverse product and services portfolio is marketed
referendum in the UK have across a range of defence markets.
led to a period of BAE Systems benefits from a large order backlog, with
uncertainty. established positions on long-term programmes
in the US, UK, Saudi Arabia and Australia.
BAE Systems has a growing portfolio of commercial
businesses, including commercial avionics
and the commercial areas of the Applied Intelligence
business. Sales in commercial markets
represented 9% of the Group's sales in 2016.
--------------------------- ---------------------------- -----------------------------------------------------------
2. Government customers
The Group's largest customers are governments.
Description Impact Mitigation -------------------------------------- -------------------------------------- -------------------------------------- The Group has long-standing Deterioration in the Group's principal Government customers have relationships and security government relationships resulting in sophisticated procurement and security arrangements with a number of its the failure to organisations with which government obtain contracts or expected funding the Group can have long-standing customers, including its three largest appropriations, adverse changes in the relationships with well-established customers, the governments of the US, terms of its arrangements and understood terms UK and Saudi with those customers or their of business. Arabia, and their agencies. It is agencies, or the termination of In the event of a customer terminating important that these relationships and contracts could have a material a contract for convenience, the Group arrangements are adverse effect on the Group's future would typically maintained. results and financial condition. be paid for work done and commitments In the defence and security made at the time of termination. industries, governments can typically modify contracts for their convenience or terminate them at short notice. Long-term US government contracts, for example, are funded annually and are subject to cancellation if funding appropriations for subsequent periods are not made. Governments also from time to time review their terms of trade and underlying policies and seek to impose such new terms and policies when entering into new contracts. The Group's performance on its contracts with some government customers is subject to financial audits and other reviews which can result in adjustments to prices and costs. -------------------------------------- -------------------------------------- --------------------------------------
3. International markets
The Group operates in international markets.
Description Impact Mitigation -------------------------------------- -------------------------------------- -------------------------------------- BAE Systems is an international The occurrence of any such events The Group has a balanced portfolio of company conducting business in a could have a material adverse effect businesses across a number of markets number of regions, including on the Group's future internationally. the US and the Middle East. results and financial condition. The Group benefits from a large order The risks of operating in some backlog, with established positions on countries include: political changes long-term programmes impacting the business in the US, UK, Saudi Arabia and environment; economic downturns, Australia. political instability and civil The Group's policy is to hedge all disturbances; changes in material firm transactional currency government regulations and exchange rate exposures. administrative policies; the The Group's contracts are often imposition of restraints on the long-term in nature and, consequently, movement it may be able to mitigate of capital; the introduction of these risks over the terms of those burdensome taxes or tariffs; and the contracts. inability to obtain or Political risk insurance is held in maintain the necessary export respect of export contracts not licences. structured on a The Group is exposed to volatility government-to-government arising from movements in currency basis. exchange rates, particularly BAE Systems has a well-established in respect of the US dollar, euro, legal and regulatory compliance Saudi riyal and Australian dollar. structure aimed at ensuring There has been volatility adherence to regulatory requirements in currency exchange rates in the and identifying restrictions that period since the announcement of the could adversely impact results of the 2016 the Group's activities, including elections in the US and EU referendum export control requirements. in the UK. Judicial Review proceedings into the process followed by the UK government in granting defence export licences to the Kingdom of Saudi Arabia are under way. A judgment is expected in the near future, which may impact the granting of export licences for the sale of arms to the Kingdom. The conclusion of the proceedings is awaited. -------------------------------------- -------------------------------------- --------------------------------------
4. Competition in international markets
The Group's business is subject to significant competition in international markets.
Description Impact Mitigation
-------------------------------------- -------------------------------------- --------------------------------------
The Group's business plan depends upon The Group's business and future The Group has an international,
its ability to win and contract for results may be adversely impacted if multi-market presence, a balanced
high-quality new it is unable to compete portfolio of businesses,
programmes, an increasing number of adequately and obtain new business in leading capabilities and a track
which are expected to be in markets the markets in which it operates. record of delivery on its commitments
outside the US and to its customers.
UK. The Group continues to invest in
The Group is dependent upon US and UK research and development, and to
government support in relation to a reduce its cost base and
number of its business improve efficiencies, to remain
opportunities in export markets. competitive.
In the UK, export contracts can be
structured on a
government-to-government basis and
government
support can also involve military
training, ministerial support for
promotional activities
and financial support through UK
Export Finance. In the US, most of the
Group's defence export
sales are delivered through the
Foreign Military Sales process, under
which the importing
government contracts with the US
government.
-------------------------------------- -------------------------------------- --------------------------------------
5. Laws and regulations
The Group is subject to risk from a failure to comply with laws and regulations.
Description Impact Mitigation -------------------------------------- -------------------------------------- -------------------------------------- The Group operates in a Failure by the Group, or its sales BAE Systems has a well-established highly-regulated environment across representatives, marketing advisers or legal and regulatory compliance many jurisdictions and is subject, others acting on structure aimed at ensuring without limitation, to regulations its behalf, to comply with these adherence to regulatory requirements relating to import-export controls, regulations could result in fines and and identifying restrictions that money laundering, false penalties and/or the could adversely impact accounting, anti-bribery and suspension or debarment of the Group the Group's activities. anti-boycott provisions. It is from government contracts or the Internal and external market risk important that the Group maintains suspension of the Group's assessments form an important element a culture in which it focuses on export privileges, which could have a of ongoing corporate embedding responsible business material adverse effect on the Group. development and training processes. behaviours and that all employees Reduced access to export markets could A uniform global policy and process act in accordance with the have a material adverse effect on the for the appointment of advisers requirements of the Group's policies, Group's future engaged in business development including the Code of Conduct, results and financial condition. is in effect. at all times. The special compliance officer, Export restrictions could become more appointed pursuant to commitments stringent and political factors or concerning ongoing regulatory changing international compliance made in the course of the circumstances could result in the 2011 settlement with the US Department Group being unable to obtain or of State, concluded maintain necessary export his monitorship in May 2014 and, at licences. the invitation of BAE Systems, agreed
to remain in a limited
capacity for a limited further period
of time.
-------------------------------------- -------------------------------------- --------------------------------------
6. Contract risk and execution
The Group has many contracts, including a small number of large contracts and fixed-price contracts.
Description Impact Mitigation
-------------------------------------- -------------------------------------- --------------------------------------
In 2016, 49% of the Group's sales were The inability of the Group to deliver Contract-related risks and
generated by its 15 largest on its contractual commitments, the uncertainties are managed under the
programmes. At 31 December loss, expiration, Group's mandated Lifecycle
2016, the Group had five programmes suspension, cancellation or Management process.
with order backlog in excess of termination of any one of its large
GBP1bn. contracts or its failure to A new leadership development programme
A significant portion of the Group's anticipate technical problems or for project directors is being
revenue is derived from fixed-price estimate accurately and control costs deployed across the
contracts. Actual on fixed-price contracts Group, covering the leadership
costs may exceed the projected costs could have a material adverse effect competencies required to manage
on which the fixed prices are agreed on the Group's future results and complex projects containing
and, since these financial condition. significant levels of risk and
contracts can extend over many years, uncertainty.
it can be difficult to predict the A significant proportion of the
ultimate outturn Group's largest contracts are with the
costs. UK Ministry of Defence.
It is important that the Group In the UK, development programmes are
maintains a culture in which it normally contracted with appropriate
delivers on its projects within levels of risk
tight tolerances of quality, time and being initially held by the customer
cost performance in a reliable, and contract structures are used to
predictable and repeatable mitigate risk on
manner. production programmes, including where
the customer and contractor share cost
savings and
overruns against target prices.
The Group has a well-balanced spread
of programmes and significant order
backlog which provides
forward visibility.
The Group has limited exposure to
fixed-price design and development
activity which is in
general more risk intensive than
fixed-price production activity.
Robust bid preparation and approvals
processes are well established
throughout the Group,
with decisions required to be taken at
the appropriate level in line with
clear delegations
of authority.
-------------------------------------- -------------------------------------- --------------------------------------
7. Contract cash profiles
The Group is dependent on the award timing and cash profile of its contracts.
Description Impact Mitigation
-------------------------------------- -------------------------------------- --------------------------------------
The Group's profits and cash flows are Amounts receivable under the Group's The Group's balance sheet continues to
dependent, to a significant extent, on defence contracts can be substantial be managed conservatively in line with
the timing of, and, therefore, its policy to
or failure to receive, award of the timing of, or failure to receive, retain an investment grade credit
defence contracts and the profile of awards and associated cash advances rating and to ensure operating
cash receipts on its and milestone payments flexibility.
contracts. could materially affect the Group's The Group monitors a rolling forecast
profits and cash flows for the periods of its liquidity requirements to
affected, thereby ensure that there is
reducing cash available to meet the sufficient cash to meet its
Group's cash allocation priorities, operational needs and maintain
potentially resulting adequate headroom.
in the need to arrange external
funding and impacting its investment
grade credit rating.
-------------------------------------- -------------------------------------- --------------------------------------
8. Pension funding
The Group has an aggregate funding deficit in its defined benefit pension schemes.
Description Impact Mitigation -------------------------------------- -------------------------------------- -------------------------------------- In aggregate, there is an actuarial Increases in pension scheme deficits In the UK, new employees have been deficit between the value of the may require the Group to increase the offered membership of defined projected liabilities amount of cash contribution rather than of the Group's defined benefit pension contributions payable to these defined benefit schemes since April schemes and the assets they hold. schemes, thereby reducing cash 2012 and, in the US, employees have The deficits may be adversely affected available to meet the Group's not accrued salary-related by changes in a number of factors, other cash allocation priorities. benefits in defined benefit schemes including investment since January 2013. returns, long-term interest rate and In 2014, deficit recovery plans, the price inflation expectations, and longest of which runs until 2026, were anticipated members' agreed with the longevity. There has been volatility trustees of the Group's UK pension in US and UK bond yields, in schemes following triennial funding particular in the period valuations. The next since the announcement of the results UK triennial funding valuations will of the 2016 elections in the US and EU commence in April 2017 and, in referendum in conjunction with the trustees the UK. The reduction in discount of the schemes and other stakeholders, rates in 2016 has increased the the Group will be looking at various Group's share of the accounting options with a net pension deficit. focus on the longer-term view.
-------------------------------------- -------------------------------------- --------------------------------------
9. Information technology security
The Group could be negatively impacted by information technology security threats.
Description Impact Mitigation
-------------------------------------- -------------------------------------- --------------------------------------
The security threats faced by the Failure to combat these risks The Group has a broad range of
Group include threats to its effectively could negatively impact measures in place, including
information technology infrastructure, the Group's reputation among appropriate tools and techniques,
unlawful attempts to gain access to its customers and the public, cause to monitor and mitigate this risk.
its proprietary or classified disruption to its business operations,
information and the potential and could result
for business disruptions associated in a negative impact on the Group's
with information technology failures. future results and financial
condition.
-------------------------------------- -------------------------------------- --------------------------------------
10. People
The Group's strategy is dependent on its ability to recruit and retain people with appropriate talent and skills.
Description Impact Mitigation
-------------------------------------- -------------------------------------- --------------------------------------
Delivery of the Group's strategy and The loss of key employees or inability The Group recognises that its
business plan is dependent on its to attract the appropriate people on a employees are key to delivering its
ability to compete timely basis strategy and business plan,
to recruit and retain people with could adversely impact its ability to and focuses on developing the existing
appropriate talent and skills, deliver its strategy, meet the workforce and hiring talented people
including those with innovative business plan and, accordingly, to meet current
technological capabilities. have a negative impact on the Group's and future requirements.
The Group's business plan is targeting future results and financial The Group has well-established
an increasing level of business in condition. graduate recruitment and
international export apprenticeship programmes and, in
markets outside the US and UK. It is order to maximise the contribution
important that the Group recruits and that its workforce can make to the
retains management performance of the business,
with the necessary international has an effective through-career
skills and experience in the relevant capability development programme.
jurisdictions. In order to seek to maximise its
talent pool, the Group is committed to
creating a diverse
and inclusive environment for its
employees.
BAE Systems continues to reinforce its
ethics programme globally, driving the
right behaviours
by supporting employees in making
ethical decisions and embedding
responsible business practices.
-------------------------------------- -------------------------------------- --------------------------------------
Additional risks and uncertainties currently unknown to the Group, or which the Group currently deems immaterial, may also have an adverse effect on the business or financial condition of the Group.
Segmental performance
Electronic Systems
Electronic Systems, with 13,800 employees(1) , comprises the US and UK--based electronics activities, including electronic warfare systems, electro-optical sensors, military and commercial digital engine and flight controls, next-generation military communications systems and data links, persistent surveillance capabilities, and hybrid electric drive systems.
Electronic Combat includes the Electronic Protection, Electronic Warfare and Electronic Attack product lines, and provides a depth of capability in integrated electromagnetic systems for airborne applications, mission planning and battle management solutions, secure networked communications and navigation systems, radio frequency communication and data links.
Survivability, Targeting & Sensing exploits the electro-optical and infrared spectrum to provide leading threat warning and infrared countermeasures systems, precision guidance and seeker solutions, advanced targeting solutions, head-up displays and state--of--the--art tactical imaging systems.
Intelligence, Surveillance & Reconnaissance addresses the market for actionable intelligence through innovative technical solutions for airborne persistent surveillance, identification systems, signals intelligence, underwater and surface warfare solutions, and space products.
Controls & Avionics addresses the military and commercial aircraft electronics markets, including fly-by-wire flight controls, full authority digital engine controls, flight deck systems, cabin management systems and mission computers.
Power & Propulsion Solutions delivers electric propulsion and power management performance, with innovative products and solutions that advance vehicle mobility, efficiency and capability in the transit, military, marine and rail markets.
Operational and strategic highlights
- Delivered the 250th electronic warfare suite for the F-35 Lightning II combat aircraft programme
- Initiated our 'Ramp 2 Rate' capital investment strategy to support growth in defence electronics production
- Awarded a $146m (GBP118m) engineering and manufacturing development contract for the US Air Force's Eagle Passive Active Warning Survivability System
- Signed a three-year Indefinite Delivery, Indefinite Quantity contract for Advanced Precision Kill Weapon System (APKWS(TM)) Full-Rate Production Lots 5 to 7, worth up to $600m (GBP486m)
- Awarded a $249m (GBP201m) contract modification on the Common Missile Warning System programme
- Awarded a contract on the US Army's Family of Weapon Sights - Crew Served programme worth up to $384m (GBP311m)
- Integration of the GEOINT-ISR business transferred from Cyber & Intelligence completed
Financial performance
Financial performance measures as defined by the Group
2016 2015(3)
----------------------------- ----- --------- ---------
Sales KPI GBP3,282m GBP2,922m
----------------------------- ----- --------- ---------
Underlying EBITA KPI GBP494m GBP437m
----------------------------- ----- --------- ---------
Return on sales 15.1% 15.0%
------------------------------------ --------- ---------
Operating business cash flow KPI GBP469m GBP370m
----------------------------- ----- --------- ---------
Order intake(1) KPI GBP3,322m GBP2,799m
----------------------------- ----- --------- ---------
Order backlog(1) GBP5.2bn GBP4.4bn
------------------------------------ --------- ---------
Financial performance measures defined in IFRS(2)
2016 2015(3)
------------------------------------ --------- ---------
Revenue GBP3,282m GBP2,922m
------------------------------------ --------- ---------
Operating profit GBP474m GBP419m
------------------------------------ --------- ---------
Return on revenue 14.4% 14.3%
------------------------------------- --------- ---------
Cash flow from operating activities GBP568m GBP445m
------------------------------------- --------- ---------
- Sales compared with 2015 were almost unchanged at $4.4bn (GBP3.3bn). The commercial areas of the business now amount to 24%, having seen sales growth in the year of 11% primarily in HybriDrive(R) systems. On the defence side, sales were slightly down on timing of production deliveries on the Digital Electronic Warfare System and other electronic warfare programmes.
- The return on sales achieved of 15.1% (2015 15.0%) was largely from continued strong programme execution and risk retirement.
- Cash conversion of underlying EBITA for the year was at 97%, excluding pension deficit funding.
- Order backlog(1) was sustained at $6.5bn (GBP5.2bn) benefiting from awards for F-35 Lightning II electronic warfare systems, the F-15 Eagle Passive Active Warning Survivability System programme and APKWS(TM).
1. Including share of equity accounted investments.
2. International Financial Reporting Standards.
3. Re-presented for the transfer of the GEOINT-ISR (Geospatial Intelligence - Intelligence, Surveillance and Reconnaissance) business from Cyber & Intelligence to Electronic Systems.
P06-07 Alternative performance measure definitions
Operational performance
Electronic Combat
BAE Systems has sustained its leadership position in the US electronic warfare and communications and navigation markets. Production is ramping up across a number of programmes. Low-Rate Initial Production hardware deliveries on the F-35 Lightning II programme continue with Lot 9 and 10 deliveries. We have received initial funding for Lot 11 with deliveries expected to commence in 2018.
The business is under contracts, from Boeing and Warner Robins Air Logistics Complex, totalling more than $1.0bn (GBP0.8bn) to install the Digital Electronic Warfare System on 84 new F-15 aircraft, upgrade 70 existing F-15 aircraft, and provide spare units and modules for an international customer. The programme remains on schedule.
In 2015, we were selected by Boeing to develop and manufacture the next-generation digital electronic warfare system for the US Air Force's Eagle Passive Active Warning Survivability System programme to upgrade up to 400 F-15 aircraft. In 2016, we received the engineering and manufacturing development contract, worth $146m (GBP118m), as a follow-on to the technology maturation and risk reduction phase. The programme could be worth more than $1.0bn (GBP0.8bn) over its life.
In January 2017, BAE Systems was awarded a $67m (GBP54m) modification to exercise the option on a previously awarded contract for an electronic warfare system for the US Air Force Special Operations Command's fleet of
C-130J aircraft. The award is currently under protest with the Government Accountability Office.
Due to the sensitive nature of electronic combat systems and technology, many of our programmes are classified. As a world leader in electronic warfare, communications and navigation solutions, the business continues to experience growth in these increasingly important areas.
Survivability, Targeting & Sensing
Our Advanced Precision Kill Weapon System (APKWS(TM)) laser-guided rocket is experiencing growing demand, with deliveries exceeding 8,000 units through 2016. In addition to expanding its use in the US military, the system is generating strong international attention, with 16 nations expressing interest. In October, the US Navy awarded us a three-year Indefinite Delivery, Indefinite Quantity contract for Full-Rate Production Lots 5 to 7 worth up to $600m (GBP486m) that could increase production to 10,000 units per year.
We continue to perform well on the Terminal High-Altitude Area Defence programme, delivering over 90 seekers in 2016 following the $80m (GBP65m) contract received for Lots 7 and 8 during the year.
On the Common Missile Warning System programme, the business was awarded a $249m (GBP201m) Indefinite Delivery, Indefinite Quantity contract modification to fulfil increased demand from our customers, the US Army and allied nations, extending the current five-year contract by two years.
On the Enhanced Night Vision Goggle III and Family of Weapon Sights - Individual programme, we completed the first round of qualification and reliability testing in September under a five-year, $434m (GBP351m) Indefinite Delivery, Indefinite Quantity contract.
On the US Army's Family of Weapon Sights - Crew Served programme, we were awarded a seven-year contract with a potential value of up to $384m (GBP311m) in September. The sight is designed to allow soldiers to acquire and engage targets at extended range.
We continue to leverage our technology and engineering capabilities, and the LiteHUD(R) head-up display has been selected by critical launch customers for integration on multiple platforms.
The next-generation Striker(R) II helmet-mounted display has completed the second phase of flight trials to integrate the system's technology with the Typhoon combat aircraft.
Intelligence, Surveillance & Reconnaissance
In 2016, Cyber & Intelligence's Geospatial Intelligence - Intelligence, Surveillance and Reconnaissance (GEOINT-ISR) business transferred to Electronic Systems and was merged with the sector's existing Intelligence, Surveillance & Reconnaissance business.
Since winning the Geospatial Data Services Foundational GEOINT Content Management programme in 2014, we have been awarded orders valued at $170m (GBP138m) and the business is meeting all delivery orders to date. The programme assists US intelligence community customers with the development of advanced geospatial intelligence data collection and processing solutions.
We provide signals intelligence capability for the US Army and other US Department of Defense customers and have received incremental funding for additional production and a technical refresh of Tactical Signals Intelligence Payloads for the US Army's Gray Eagle unmanned aircraft, bringing the total contract value to approximately $116m (GBP94m).
The business is in Full-Rate Production on the US Navy's P-8A Poseidon maritime surveillance aircraft programme, providing state--of--the-art processing capabilities. We delivered 18 mission computer and display systems in 2016, and received a $60m (GBP49m) contract for Full-Rate Production Lot 4 in December.
Controls & Avionics
BAE Systems is a major supplier to Boeing for flight controls, and cabin and flight deck systems. Development of the integrated flight control electronics and remote electronic units for Boeing's next-generation 777X aircraft is on schedule, with the Critical Design Reviews for all system components complete and systems integration testing in progress. On the Boeing 737 MAX aircraft, flight testing of our spoiler controls, flight deck systems and utilities is progressing well, with the first production hardware delivered in November. The Bombardier C Series aircraft entered service equipped with BAE Systems' flight control electronics.
FADEC Alliance, a joint venture between FADEC International (the Group's joint venture with Safran Electronics & Defense) and GE Aviation, is now on contract to provide the full authority digital engine controls (FADEC) for: the Leap engine on the Airbus A320neo, Boeing 737 MAX and Comac C919; the Passport 20 engine on the Bombardier Global 7000/8000; the GE9x engine on the Boeing 777X; and a new generation of advanced turboprop engines.
We completed qualification of an active control side-stick for the Gulfstream G500/G600 aircraft, with testing nearing completion for the Embraer KC-390. The product will be the first civil-certified active control side-stick with application across both commercial and military markets.
On the F-35 Lightning II programme, the business completed Low-Rate Initial Production Lot 9 deliveries of 57 production shipsets, plus spares, of the vehicle management computer and active inceptor system equipment. Both systems are now in production for Lot 10 and we expect to be under contract for Lot 11 in 2017.
Power & Propulsion Solutions
In 2016, the business delivered more than 1,000 hybrid-electric propulsion systems to transit agencies around the world and, in November, achieved the milestone of having 7,000 hybrid-electric propulsion systems in service.
Cities including London, Paris, Seattle and Boston are using our hybrid and electric drive systems to save fuel and prevent CO2 emissions.
We continued to increase our global presence with Solaris Bus & Coach in Poland offering our hybrid-electric system on its buses from September.
Looking forward
In the US, following the two-year Bipartisan Budget Act signed in 2015, there are signs of a return to growth in defence budgets, with the new administration expected to further increase defence and security spending.
Electronic Systems is well positioned to address current and evolving priority programmes from its strong franchise positions in electronic warfare, electro-optics and Intelligence, Surveillance and Reconnaissance. Electronic Systems has a long-standing programme of research and development, and 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 franchise positions, particularly on the F-35 Lightning II and F-15 upgrade programmes, and its ability to apply innovative technology solutions that meet defence customers' changing requirements. In the commercial aviation market, Electronic Systems' technology innovations are enabling the business to renew long-standing customer positions and to compete for and win new business.
Cyber & Intelligence
Cyber & Intelligence, with 11,800 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 and financial security activities.
Intelligence & Security delivers a broad range of services to the US military and government.
Global Analysis & Operations provides innovative, mission-enabling analytic solutions and support to the US government.
Integrated Electronics & Warfare Systems provides systems engineering, integration and through-life support services for US defence and coalition partner customers.
IT Solutions delivers operational secure solutions that enable US national security customers to perform operations and protect their data and networks.
Applied Intelligence provides data intelligence solutions which enable governments and commercial organisations to defend against national-scale threats, protect their networks and data against sophisticated attacks and operate successfully in cyberspace. Its solutions are delivered as licensed technologies, software-as-a-service subscriptions, through outsourced managed services, and via consulting and systems integration projects.
Commercial Solutions provides cyber defence, counter-fraud and financial compliance products to commercial organisations globally.
UK Services delivers cyber security, data analytics, and digital transformation consulting and systems integration services to national security, government and large enterprises in the UK.
International Services & Solutions provides cyber intelligence and defence solutions to international government agencies and communications service providers.
Operational and strategic highlights
Intelligence & Security
- Established prime positions under a five-year imagery analysis, training and support contract worth an estimated $350m (GBP283m)
- Awarded a five-year contract valued at up to $368m (GBP298m) to integrate weapon systems aboard US and UK submarines
- Awarded task orders totalling more than $240m (GBP194m) to provide information technology services to the US government
Applied Intelligence
- Second year of expanded investment in product development, and sales and marketing driving continued growth in commercial cyber security and counter--fraud
- 'Business Defence' marketing campaign is generating new leads in the commercial business
- Continued shift towards multi-year managed services and subscription-based, cloud-delivered products in the commercial sector
- Good execution of cyber defence and intelligence programmes for UK and international government customers
Financial performance
Financial performance measures as defined by the Group
2016 2015(3)
----------------------------- ----- --------- ---------
Sales KPI GBP1,778m GBP1,564m
----------------------------- ----- --------- ---------
Underlying EBITA KPI GBP90m GBP104m
----------------------------- ----- --------- ---------
Return on sales 5.1% 6.6%
------------------------------------ --------- ---------
Operating business cash flow KPI GBP83m GBP46m
----------------------------- ----- --------- ---------
Order intake(1) KPI GBP1,885m GBP1,753m
----------------------------- ----- --------- ---------
Order backlog(1) GBP2.4bn GBP2.2bn
------------------------------------ --------- ---------
Financial performance measures defined in IFRS(2)
2016 2015(3)
------------------------------------ --------- ---------
Revenue GBP1,778m GBP1,564m
------------------------------------ --------- ---------
Operating profit/(loss) GBP59m GBP(31)m
------------------------------------ --------- ---------
Return on revenue 3.3% (2.0)%
------------------------------------- --------- ---------
Cash flow from operating activities GBP106m GBP70m
------------------------------------- --------- ---------
- In aggregate, sales were marginally higher at $2.4bn (GBP1.8bn). The Intelligence & Security business saw a 2% increase largely in the area of provision of managed services to the intelligence community. Growth in the Applied Intelligence business was at 11%, benefiting from increases in the Commercial Solutions and UK Services divisions.
- The return on sales achieved was 5.1% (2015 6.6%). Higher levels of costs expensed in the Applied Intelligence business, together with delays in securing software licence sales, meant that there was a loss recorded in the business of GBP19m. In the year, the total cost base of the business (labour and overheads) amounted to more than GBP480m, all of which was expensed through the income statement.
- There was an operating loss in the prior year due to the impairment of goodwill in the Intelligence & Security business reflecting lower business growth assumptions.
- Cash conversion of underlying EBITA for the year was in excess of 100%, excluding pension deficit funding.
- In aggregate, order backlog(1) reduced to $3.0bn (GBP2.4bn). Order backlog in the Intelligence & Security business was 5% lower on trading out of certain longer-term contracts. In the Applied Intelligence business, order backlog increased by 9% over the year driven mainly by UK government services and commercial awards.
1. Including share of equity accounted investments.
2. International Financial Reporting Standards.
3. Re-presented for the transfer of the GEOINT-ISR (Geospatial Intelligence - Intelligence, Surveillance and Reconnaissance) business from Cyber & Intelligence to Electronic Systems.
P06-07 Alternative performance measure definitions
Operational performance
Intelligence & Security
Global Analysis & Operations
In Full-Motion Video and Intelligence, Surveillance and Reconnaissance analysis, we have more than 500 analysts sustaining mission-critical activities globally. These security-cleared analysts are currently executing on programmes with a combined value of more than $400m (GBP324m). Re-compete awards for many of these programmes are being awarded under a new Indefinite Delivery, Indefinite Quantity contract. We have established a prime position on two of the three functional areas under this contract, worth an estimated $350m (GBP283m) over five years, which could enable us to expand our work in motion-imagery analysis, analytic training, multi-media support and research. Award of a third functional area under this contract is expected in 2017.
We are currently performing under the first year of a five-year contract with an estimated ceiling value of $75m (GBP61m) to provide the US Army with geospatial intelligence data analysis support services and the business is fulfilling the third year of a five-year contract worth up to $143m (GBP116m) to provide counter-terrorism analysis services to the US government.
Integrated Electronics & Warfare Systems
We have been awarded a five-year, sole-source contract worth up to $368m (GBP298m) by the US Navy to assist with system integration and provide test engineering services and special test equipment for weapons systems on board US Ohio and UK Vanguard Class submarines.
Other US Navy awards in the year include: a five-year contract worth up to $86m (GBP70m) to provide management, engineering, maintenance and IT support services for critical mission equipment and combat services used by Naval Sea Systems Command; a two-year, $73m (GBP59m) contract from the Naval Air Warfare Center Aircraft Division to provide lifecycle support services for communications and electronics equipment and subsystems; and a five-year, $52m (GBP42m) contract to provide essential maintenance and testing support for various air traffic control and landing systems.
We continued to support the US Navy's Space and Naval Warfare Systems Center Atlantic, to integrate new C4I (Command, Control, Communications, Computers and Intelligence) equipment on approximately 6,000 Mine Resistant Ambush Protected vehicles over a five-year period, with more than 2,000 vehicles serviced in 2016.
We were awarded a two-year, $16m (GBP13m) task order by the US Army's Space and Missile Defense Command/Army Strategic Command to continue the development of specialised cyber vulnerability assessment tools to harden and protect space assets. We also secured a two-year, $13m (GBP11m) task order to build a Cyber Warrior Training Capability in support of the Missile Defense Agency.
Under the US Air Force's Intercontinental Ballistic Missile Integration Support Contractor programme, we were awarded more than $190m (GBP154m) in additional engineering scope change proposals in 2016, which has resulted in the total contract lifecycle value reaching nearly $900m (GBP728m) since we began managing the programme in 2013.
IT Solutions
We are executing the first of several task orders to provide IT services to high-priority US government agencies under a ten-year, single-award Indefinite Delivery, Indefinite Quantity contract awarded in 2015 with a potential value of more than $1.0bn (GBP0.8bn), under which task orders totalling approximately $240m (GBP194m) have been awarded to date.
Under the Enhanced Solutions for the Information Technology Enterprise (e-SITE) Indefinite Delivery, Indefinite Quantity contract for the Defense Intelligence Agency, we were awarded a five-year, $58m (GBP47m) re-compete task order to continue designing, developing, engineering, installing and sustaining information technology resources.
The US Air Force Research Laboratory awarded the business a five-year contract worth up to $49m (GBP40m) to develop, deploy and maintain cross-domain solutions for safeguarding the sharing of sensitive information between government networks.
Applied Intelligence
The business has continued to invest in commercial cyber security and counter-fraud product development, and sales and marketing to drive revenue growth. A 'Business Defence' marketing campaign, launched initially in the US, is generating new leads in the commercial business. We have continued to build our cyber skills and engineering capabilities internationally. During the year, we opened a 'Nerve Centre' in Malaysia, a state-of-the-art facility that supports our global cyber security, anti-financial crime and threat intelligence capabilities.
Commercial Solutions
The business continues to shift towards more multi-year managed services and subscription-based, cloud-delivered products. During the year, an enhanced Managed Security Services offering to enterprise-class customers was launched in the US, building on the success of our existing mid-market offering. We have seen growth in managed security services through partnerships with regional communications service providers in the UK and North America.
The business continues to sell licensed 'on premise' software products, with awards in the year including a pilot with a major UK financial institution for the CyberReveal(TM) threat analytics solution, which defends large enterprises against sophisticated cyber-attacks.
We have continued to extend our position in counter-fraud and financial compliance with further sales of multi-year service offerings, including a five-year contract to provide a customised NetReveal(TM) counter-fraud analytics solution for HM Revenue & Customs in the UK and the extension of the managed fraud detection service for the Insurance Fraud Bureau in the UK to 2020. The business was appointed by SWIFT, the world's leading provider of secure financial messaging services, to join its new Customer Security Intelligence team and has announced an Incident Response partnership with Allianz Global Corporate & Specialty.
UK Services
The business has maintained its position as a key supplier to national security agencies in the UK, with a number of new framework agreements and contract wins, including follow-on work for existing customer programmes.
Demand for cyber security services from large enterprises has continued, with a two-year cyber security support contract in the transport sector and the extension of a team delivering cyber security advisory services for a UK telecommunications operator.
The data and digital transformation business continues to grow, with new contracts covering a team delivering aspects of IT transformational change in HM Revenue & Customs to the final quarter of 2017 and collaboration in the Digital Railway programme helping to develop an industry architecture and capability development framework for the UK rail industry. We have won a number of service integration and management advisory contracts in central government departments.
International Services & Solutions
We have seen continued demand in Asia--Pacific, Europe and the Middle East for protection against national threats. A pilot advanced cyber threat analytics and investigation solution on a national telecommunications network in Asia was successfully implemented during the year and there has been growth in business with top-tier telecommunications providers in Australia.
The latest release of the IntelligenceReveal(TM) all-source analysis solution, which enables customers to view a single, unified intelligence picture, has supported the implementation of a large programme for a strategic law enforcement customer. We have also won a contract to build a technology demonstrator in the UK that allows users to move information between security domains without compromising confidentiality, integrity or availability.
Looking forward
Intelligence & Security
Following a period of market contraction in the US government services sector, the Group believes the outlook is now stable with market conditions remaining highly competitive.
The Intelligence & Security business has continued to reduce costs to address government budget pressures, whilst pursuing growth opportunities, particularly in critical, mission-focused areas.
Applied Intelligence
Investment continues in product development, sales and marketing, and building cyber and engineering capabilities in the UK and international markets.
The business continues to migrate towards a multi-year managed service and subscription-based model, providing enhanced predictability of revenues, and growing further the order backlog and pipeline of opportunities from commercial and government customers in North America, Europe, Asia-Pacific and the Middle East.
Platforms & Services (US)
Platforms & Services (US), with 11,300 employees(1) , has operations in the US, UK and Sweden. It produces combat vehicles, weapons and munitions, and delivers services and sustainment activities, including ship repair and the management of government-owned munitions facilities.
US Combat Vehicles focuses on a portfolio of tracked combat vehicles, amphibious vehicles, accessories, protection systems and tactical support services for the US military and international customers.
Weapon Systems and Munition Operations focuses on naval weapons, artillery, advanced weapons, precision munitions, high explosives and propellants for US, UK and international customers.
Services include complex munition site management for the US Army's Holston and Radford facilities.
US Ship Repair and Modernisation is a major provider of non-nuclear ship repair, modernisation, overhaul and conversions to the US Navy, government and commercial maritime customers. It has six operational sites in the US on the Atlantic, Gulf of Mexico and Pacific coasts, as well as in Hawaii.
BAE Systems Hägglunds focuses on the tracked vehicle market for Swedish and international customers.
FNSS, the Turkish land systems business in which BAE Systems holds a 49% interest, produces and upgrades tracked and wheeled military vehicles for domestic and international customers.
Operational and strategic highlights
- Roll-out of the first prototype Armored Multi-Purpose Vehicle for the US Army and delivery of the first prototype Amphibious Combat Vehicles for the US Marine Corps
- 34 vehicle sets delivered to the US Army under the M109A7 Paladin self-propelled howitzer programme
- Commenced production of 30 Assault Amphibious Vehicles for Japan under a $160m (GBP129m) contract
- GBP183m contract received in July for the gun system on the UK Type 26 frigate
- Secured a $542m (GBP439m) contract to provide 145 M777 lightweight howitzers to India in January 2017
- Received a $182m (GBP147m) contract to refurbish and upgrade 262 CV90 Infantry Fighting Vehicles for Sweden
- FNSS awarded a contract to supply 260 Anti-Tank Vehicles to the Turkish Land Forces worth more than EUR278m (GBP237m)
- The arrival of a new dry dock at the San Diego shipyard to expand capabilities for servicing US Navy ships
Financial performance
Financial performance measures as defined by the Group
2016 2015
----------------------------- ---- --------- ---------
Sales KPI GBP2,874m GBP2,779m
----------------------------- ---- --------- ---------
Underlying EBITA KPI GBP211m GBP177m
----------------------------- ---- --------- ---------
Return on sales 7.3% 6.4%
----------------------------------- --------- ---------
Operating business cash flow GBP58m GBP100m
----------------------------------- --------- ---------
Order intake(1) KPI GBP3,308m GBP2,737m
----------------------------- ---- --------- ---------
Order backlog(1) KPI GBP4.6bn GBP3.9bn
----------------------------- ---- --------- ---------
Financial performance measures defined in IFRS(2)
2016 2015
------------------------------------ --------- ---------
Revenue GBP2,783m GBP2,678m
------------------------------------ --------- ---------
Operating profit GBP182m GBP142m
------------------------------------ --------- ---------
Return on revenue 6.5% 5.3%
------------------------------------- --------- ---------
Cash flow from operating activities GBP129m GBP144m
------------------------------------- --------- ---------
- Sales in the year declined by 8% to $3.9bn (GBP2.9bn). The sales reduction in the naval ship repair business was less than expected, with stronger volumes through our Norfolk yard.
- The business has delivered an improved return on sales of 7.3% (2015 6.4%). Whilst further charges had to be taken in the year on the commercial shipbuilding programmes, these were partly offset by provision releases, primarily on the Radford munitions contract. The net impact of these charges and releases was 1.3 percentage points on return on sales.
- Cash conversion of underlying EBITA was impacted by the use of provisions on the commercial shipbuilding programmes and of customer advances on the CV90 Norway contract, along with the investment, now completed, on the new floating dry dock facilities in San Diego.
- Order backlog(1) was almost unchanged at $5.7bn (GBP4.6bn). The trading out of the five-year Multi-Ship, Multi-Option contracts in the ship repair business and on the CV90 Norway programme were largely offset by multiple domestic and international land vehicle awards along with the gun contract for the UK's Type 26 frigate. The Indian M777 lightweight howitzer award for $542m (GBP439m) was not contracted until January 2017.
1. Including share of equity accounted investments.
2. International Financial Reporting Standards.
P06-07 Alternative performance measure definitions
Operational performance
US Combat Vehicles
The business continues to hold a number of key franchise programmes, including the long-standing Bradley Infantry Fighting Vehicle, the M109 family of vehicles, the M88 Heavy Recovery Vehicle, the Assault Amphibious Vehicle and the more recent Armored Multi-Purpose Vehicle, with future prospects including the Amphibious Combat Vehicle 1.1 programme.
We have rolled out the first of 29 vehicles under the engineering and manufacturing development phase of the US Army's Armored Multi-Purpose Vehicle programme. The potential contract value for the initial phase of the programme is $1.2bn (GBP1.0bn), including options for 289 vehicles in Low-Rate Initial Production. Anticipated Full-Rate Production is expected to approach 3,000 vehicles.
We continue to execute on the $670m (GBP542m) Low-Rate Initial Production phase of the M109A7 Paladin self-propelled howitzer programme to deliver 66 vehicle sets and an additional howitzer. At 31 December, 34 vehicle sets, together with the additional howitzer, had been delivered. The US Army's total acquisition objective through all programme phases is for 581 vehicle sets.
The business is executing a $286m (GBP231m) Engineering Change Proposal to address the space, weight, power and cooling limitations of the Bradley family of vehicles as well as preparing the vehicle for communication network upgrades. In 2017, the customer's production decision is expected regarding the upgrade of approximately 500 vehicles over a three-year period from 2019.
In April, we received a contract valued at $110m (GBP89m) from the US Army to convert 36 M88A1 recovery vehicles to the M88A2 Heavy Equipment Recovery Combat Utility Lift Evacuation Systems (HERCULES) configuration. Deliveries are scheduled to begin in November 2017.
Along with industry partner Iveco Defence, BAE Systems has begun deliveries of the first of 16 Amphibious Combat Vehicle 1.1 prototypes under a $104m (GBP84m) contract for the engineering and manufacturing development phase of the programme. Testing by the US Marine Corps will start in the first half of 2017 and final down-selection to a single manufacturer is expected in 2018.
Leveraging our expertise in amphibious capabilities, we were awarded contracts totalling $160m (GBP129m) for the production of 30 new Assault Amphibious Vehicles (AAV) and the upgrade of two AAV for the Japanese Ministry of Defence.
In April, we received a contract valued at $50m (GBP40m) to deliver 236 M113 upgrade kits and technical support for the Brazilian Army, with contract deliveries scheduled to complete in 2018. In September, the Brazilian government awarded the business a $54m (GBP44m) contract to provide 32 upgraded M109A5+ self-propelled howitzers.
Weapon Systems and Munition Operations
BAE Systems remains a leading provider of gun systems and precision strike capabilities, and continues work with the US Navy on the development of the Hyper Velocity Projectile and the Electromagnetic Railgun.
In April, we received multiple awards from the US Navy, including a $38m (GBP31m) contract modification to provide additional missile canisters for the Mk 41 Vertical Launching System and a $72m (GBP58m) contract to produce and deliver propulsor systems for Block IV Virginia Class submarines.
In August, the US Navy exercised a $50m (GBP40m) contract option to upgrade four additional Mk 45 gun systems, bringing the total value of the contract to $130m (GBP105m) for ten systems.
In July, we received a GBP183m contract from the UK Ministry of Defence to provide the gun system known as the Maritime Indirect Fire System for the Royal Navy's Type 26 frigate.
Deliveries to the Swedish government of the 24 Archer artillery systems were completed in December. In September, the Swedish government announced its intent to purchase the additional 24 Archer systems originally contracted for Norway.
In February 2017, we completed the acquisition of IAP Research, an engineering company focused on the development and production of electromagnetic launchers, power electronics and advanced materials.
In the complex infrastructure operations business, we manage the US Army's Radford and Holston munitions facilities. In the year, we were awarded $85m (GBP69m) in contract modifications at Holston for waste water management, followed by a $146m (GBP118m) contract in October to construct a nitric acid recovery facility to increase capacity for producing insensitive munitions. In September, we received a $69m (GBP56m) contract for continued production of MK 90 propellant grain.
In November, the US and Indian governments signed a Letter of Agreement for the Foreign Military Sale of 145 M777 lightweight howitzers and, in January 2017, we received the $542m (GBP439m) contract from the US government to supply these howitzers to the Indian Army. We have selected Mahindra & Mahindra as our supplier to establish an assembly, integration and test facility in India in support of the Indian Prime Minister's 'Make in India' initiative.
US Ship Repair and Modernisation
We are a leading provider of ship repair and modernisation services. In 2016, we secured firm orders across our US shipyards totalling approximately $1.1bn (GBP0.9bn) and the business remains well positioned to compete for future contracts in the maritime domain.
We continue to adjust our workforce and facilities to meet the evolving demand for US Navy ship repair. To support the US Navy's re-balance to the Asia-Pacific region, a new dry dock arrived in our San Diego shipyard in December and became operational in February 2017. The USS New Orleans, an amphibious dock landing ship, will be the first vessel to be serviced in the dry dock under a $37m (GBP30m) contract received in November.
In commercial shipbuilding, we continued to experience challenges in the year, taking a $73m (GBP54m) charge against ongoing contracts. Workforce adjustments continue as these contracts near completion. Six ships have now been accepted by customers, with the remaining two ships expected to complete in 2017.
In January 2017, we completed the sale of our BAE Systems San Francisco Ship Repair business enabling us to focus on our larger, retained shipyards providing strong capabilities and support to our key maritime customers, including the US Navy.
BAE Systems Hägglunds
Series production continues on the $865m (GBP700m) contract awarded in 2012 for the supply of CV90 Infantry Fighting Vehicles to Norway.
In addition to production of CV90 vehicles, we have been awarded contracts for refurbishment and upgrade. In March, we were awarded a contract valued at $182m (GBP147m) to refurbish 262 CV90 vehicles for the Swedish Army and, in September and October, two contracts from the Danish government for sustainment and upgrade of its CV90 fleet. In December, the Swedish government awarded us a $68m (GBP55m) contract for the integration of Mjölner mortar systems on 40 CV90s, and we received a contract from the Dutch government for testing and verification of Active Protection Systems on CV90s.
In June, we were awarded a contract to produce 32 BvS10 military vehicles for Austria, the fifth nation to acquire the all-terrain vehicle.
FNSS
FNSS, our land systems joint venture based in Turkey, has continued to perform under its $524m (GBP424m) programme to produce 259 8x8 wheeled armoured vehicles for the Royal Malaysian Army.
Production remains on schedule under a contract to upgrade M113 tracked armoured personnel carriers for the Royal Saudi Land Forces and, in 2016, the business received a contract to integrate mortar systems.
In support of a customer contract awarded in 2015 to supply the PARS Wheeled Armoured Vehicle, work has begun to deliver 8x8 and 6x6 vehicles in a number of configurations.
In June, FNSS was awarded a contract worth more than EUR278m (GBP237m) to supply 260 Anti-Tank Vehicles to the Turkish Land Forces. The scope of the project includes both tracked and wheeled vehicles equipped with anti-tank guided missile system turrets.
In December, FNSS signed an EUR84m (GBP72m) contract with ASELSAN, a Turkish defence electronics company, for amphibious tracked armoured vehicles for the Turkish Land Forces.
Looking forward
In the US, following the two-year Bipartisan Budget Act signed in 2015, there are signs of a return to growth in defence budgets, with the new administration expected to further increase defence and security spending.
The business is underpinned by strong positions on key franchise programmes. In the land domain, this includes the US Army's Armored Multi-Purpose Vehicle, Bradley and Paladin programmes and the CV90 and BvS10 export programmes from our BAE Systems Hägglunds business.
FNSS has grown its order book with both domestic and international orders secured during 2016.
These long-term contracts, our strong franchise in tracked vehicles and opportunities in international markets, position the land business for a return to growth in the medium term.
In the maritime domain, the Group has a strong position on naval gun programmes and US Navy ship repair. Additional dry dock ship repair capacity has been established in San Diego to support the US Navy's re-balance to the Asia-Pacific region.
The business continues to pursue a range of domestic and international opportunities in combat and amphibious vehicles, weapons systems and maritime support services.
Platforms & Services (UK)
Platforms & Services (UK), with 30,100 employees(1) , comprises the Group's UK--based air, maritime, land and shared services activities.
Military Air & Information includes programmes for the production of Typhoon combat and Hawk trainer aircraft, F-35 Lightning II manufacture and support, support and upgrades for Typhoon, Tornado and Hawk aircraft, and development of next-generation Unmanned Air Systems and defence information systems.
Maritime programmes include the construction of two Queen Elizabeth Class aircraft carriers, five River Class Offshore Patrol Vessels and seven Astute Class submarines for the Royal Navy, the design and production of the Dreadnought Class submarine and Type 26 frigate, and in-service support, including the five-year contract secured in 2014 for the delivery of services at HM Naval Base, Portsmouth.
Land (UK) provides combat vehicle upgrades and support to the British Army and international customers, and designs, develops and manufactures a comprehensive range of munitions products servicing its main customer, the UK Ministry of Defence, as well as international customers. The business also develops and manufactures cased--telescoped weapons through its CTA International joint venture.
Operational and strategic highlights
- GBP1.0bn of orders for our workshare on 28 Typhoon aircraft for Kuwait
- Partnership arrangement for support to the UK Typhoon fleet expected to be worth at least GBP2.1bn over a ten-year period
- F-35 Lightning II orders worth GBP637m, including Lot 10 production and construction of engineering and training facilities in the UK, and the UK selected as European regional avionics and component repair hub
- GBP472m extension to the Type 26 frigate demonstration phase contract and UK government commitment to manufacture eight ships
- GBP287m contract awarded for two additional Offshore Patrol Vessels, including support services for the five-ship programme
- Reactor core successfully loaded on the fourth Astute Class submarine
- GBP1.3bn of funding received for Dreadnought Class submarine design, initial manufacture, materials and facilities investment
- Down-selected as one of two contenders for the Challenger 2 Life Extension Programme
- GBP445m order on the Munitions Acquisition Supply Solution partnering agreement for five years of supply
Financial performance
Financial performance measures as defined by the Group
2016 2015
----------------------------- ---- --------- ---------
Sales KPI GBP7,806m GBP7,405m
----------------------------- ---- --------- ---------
Underlying EBITA KPI GBP810m GBP721m
----------------------------- ---- --------- ---------
Return on sales 10.4% 9.7%
----------------------------------- --------- ---------
Operating business cash flow KPI GBP199m GBP220m
----------------------------- ---- --------- ---------
Order intake(1) KPI GBP8,024m GBP4,944m
----------------------------- ---- --------- ---------
Order backlog(1) GBP17.8bn GBP17.8bn
----------------------------------- --------- ---------
Financial performance measures defined in IFRS(2)
2016 2015
------------------------------------ --------- ---------
Revenue GBP7,699m GBP7,319m
------------------------------------ --------- ---------
Operating profit GBP780m GBP756m
------------------------------------ --------- ---------
Return on revenue 10.1% 10.3%
------------------------------------- --------- ---------
Cash flow from operating activities GBP385m GBP289m
------------------------------------- --------- ---------
- The year's sales of GBP7.8bn were 5% higher than 2015. The increase came from the expected ramp up on F-35 Lightning II deliveries and Saudi trainer aircraft. Activity and milestone performance on the submarine programmes was ahead of plan. There was also a higher level of intercompany activity under the Saudi support contracts which is eliminated at the Group level.
- The return on sales was 10.4% (2015 9.7%).
- Cash performance was better than expected, with an operating business cash inflow of GBP199m (2015 GBP220m). Consumption of customer advances occurred on the Omani, Saudi and European Typhoon contracts, albeit some early receipts on the Omani contract mitigated that to a limited extent.
- Order backlog(1) was stable at GBP17.8bn (2015 GBP17.8bn). Sales trading on the Typhoon aircraft and aircraft carrier programmes was replaced by the ten-year UK Typhoon support award and Kuwait Typhoon subcontract.
1. Including share of equity accounted investments.
2. International Financial Reporting Standards.
P06-07 Alternative performance measure definitions
Operational performance
Military Air & Information
In the year, 16 Typhoon aircraft were delivered from the UK final assembly facility, of which 11 were delivered to Saudi Arabia. Cumulative aircraft deliveries to the UK, Germany, Italy and Spain total 232 of the contracted 236 Tranche 2 aircraft and 33 of the contracted 88 Tranche 3 aircraft.
The Oman Typhoon and Hawk aircraft programme is on track for commencement of deliveries in 2017.
Orders totalling GBP1.0bn have been received via Eurofighter from our Italian Eurofighter partner, Leonardo, for BAE Systems' share of work on the 28 Typhoon aircraft for Kuwait covering airframe manufacture, support, capability upgrade and Electronically Scanned (E-Scan) radar integration work.
Typhoon's capabilities continue to be enhanced with the ongoing integration of the Captor E-Scan radar and the Storm Shadow, Meteor and Brimstone 2 missiles as part of European capability delivery programmes. Development towards the Royal Air Force Centurion standard continues, which will enable transition of capability from Tornado to Typhoon.
We have continued to support our UK and European customers' Typhoon and Tornado aircraft and their operational commitments. A ten-year partnership arrangement with the Ministry of Defence to support the UK Typhoon fleet, expected to be worth at least GBP2.1bn, was signed in July.
On the F-35 Lightning II programme, we completed delivery of 55 aft fuselage assemblies for the Low-Rate Initial Production Lot 9 and 10 contracts. Additional orders were received for Lot 10 during the year, worth GBP168m, with full contract award expected in 2017 following agreement of the front-end contract between Lockheed Martin and the US government. The proposal for Lot 11 has been submitted to Lockheed Martin in advance of negotiations expected to complete in 2017. A GBP118m contract to build engineering and training facilities at RAF Marham in Norfolk, UK, has been secured, with work scheduled to be completed in 2018 in readiness for the arrival of the UK's first F-35 Lightning II aircraft. In November, the F-35 Joint Programme Office announced that it had chosen the UK as a major repair hub for the maintenance, repair, overhaul and upgrade of F-35 Lightning II avionics and components, during the period 2021 to 2025 on a global basis and from 2025 onwards for the Europe region.
Support continues to be provided to users of Hawk trainer aircraft around the world. A long-term support contract for the Royal Air Force's UK fleet of Hawk fast jet trainer aircraft was announced in the year and we continue to deliver against all contractual milestones.
In 2016, the Indian Navy and Air Force received three and ten Hawk aircraft, respectively, completing the delivery of all 57 aircraft built under licence by Hindustan Aeronautics Limited (HAL). Negotiations continue with HAL for the supply of 32 aircraft kit sets which will result in aircraft built under licence by HAL for the Indian Air Force and Indian Navy.
In March, we welcomed the announcement by the UK and French governments of a EUR2bn (GBP1.7bn) programme to build operationally representative unmanned combat air system demonstrators. This will secure highly-skilled engineering jobs and the first phase is anticipated to commence in 2018.
The UK technology programme for the air sector continues to progress with a successful set of demonstrations in 2016 and further order intake has been received to develop critical systems and capabilities for future unmanned systems and other aircraft.
In Turkey, following a pre-contract study phase between BAE Systems and Turkish Aerospace Industries, we have signed a heads of agreement to collaborate on the first design and development phase of an indigenous fifth-generation fighter jet for the Turkish Air Force. When on contract, this will have a value in excess of GBP100m.
Maritime
On the aircraft carrier programme, good progress has been made on commissioning HMS Queen Elizabeth's key systems and the business is working with the Ministry of Defence to prepare the support solution in advance of her expected arrival at HM Naval Base, Portsmouth, in 2017. On HMS Prince of Wales, all of the blocks are now assembled, with large volume installation activities under way. Sea trials on the aircraft carriers are expected to complete in 2017 and 2019, respectively.
In preparation for the manufacturing contract for the Type 26 frigate, a GBP472m extension to the demonstration phase contract was secured in March, covering detailed design activities and enabling us to subcontract for key equipment with companies throughout the supply chain. The engineering design programme continues to progress to enable commencement of manufacture of the first ship in 2017. The programme currently employs more than 1,000 staff.
Under a heads of terms signed in November, BAE Systems and the Ministry of Defence reached agreement in principle on the award of a contract reflecting the government's intention to build eight Type 26 frigates on the Clyde and a further two River Class Offshore Patrol Vessels. The Offshore Patrol Vessels were contracted in December for GBP287m, including support services for the five-ship programme.
Progress has been maintained on the manufacture of the first three Offshore Patrol Vessels, FORTH, MEDWAY and TRENT. The programme supports shipbuilding skills and provides a bridge for the business between the aircraft carrier programme and manufacture of the Type 26 frigate.
Under the Maritime Support Delivery Framework contract, in place until March 2019, we provide services at HM Naval Base, Portsmouth, and support to half of the Royal Navy's surface fleet. Achievement of target cost remains on track.
BAE Systems manages the support, maintenance and upgrade of the Royal Navy's fleet of Type 45 destroyers.
Progress continues on the GBP270m Spearfish torpedo upgrade demonstration and manufacture phases, with the demonstration phase currently forecast to complete in 2019.
The first three of seven Astute Class submarines are in operational service with the Royal Navy, with the reactor core load on boat four completed in the second half of the year. Further funding of GBP228m for the sixth and seventh boats was received in the year. Negotiations for full pricing of the sixth and seventh boats have commenced.
The Ministry of Defence, BAE Systems and Rolls-Royce have signed a heads of terms to set up a Dreadnought Build Alliance documenting the UK government and industry's commitment to the delivery of the Dreadnought Class submarine programme, the replacement for the Royal Navy's Vanguard Class submarine fleet, and setting out an organisational and managerial structure and series of commercial principles necessary to deliver it.
Functional and spatial design continues to advance on the Dreadnought Class submarine. During 2016, GBP1.3bn of funding was received for continued design, initial manufacture of the first boat, material commitment and facilities investment. Preparations for the manufacture of Dreadnought include a major programme of building works at the Barrow site, with contracts in place totalling more than GBP300m. The UK government's commitment to the Dreadnought programme was endorsed by Parliament during the year.
Land (UK)
The business provides ongoing support to previously-supplied armoured vehicles and bridging systems, with orders of GBP56m received in the year. In the UK, the business has been down-selected as one of two contenders to deliver the first stage of the Challenger 2 Life Extension Programme and, in the overseas market, the business secured a multi-year contract for support and maintenance to the Latvian fleet of Combat Vehicle Reconnaissance (Tracked) vehicles purchased from the UK Ministry of Defence.
The first 29 of 515 40mm cased-telescopic cannons were delivered to the Ministry of Defence by CTA International, a 50% joint venture between BAE Systems and Nexter.
The business continues to provide UK and international customers with a full range of light and heavy munitions. We have concluded pricing negotiations on our 15-year Munitions Acquisition Supply Solution partnering agreement with the Ministry of Defence, worth GBP445m.
Looking forward
Platforms & Services (UK) has an order backlog of long-term committed programmes and an enduring support business. The Strategic Defence and Security Review announced in November 2015 provided clarity, continuity and stability for the UK contracted business and has been consistently implemented through long-term contract awards and commitments.
In Military Air & Information, sales are underpinned by Typhoon and F-35 Lightning II aircraft production and in-service support. There are opportunities to secure further Typhoon export sales building on the purchase of 28 aircraft by Kuwait.
In Maritime, sales are underpinned by the design and subsequent manufacture of the Type 26 frigate and long-term contracts on Queen Elizabeth Class aircraft carriers, River Class Offshore Patrol Vessels, and Astute and Dreadnought Class submarines. The through-life support of existing and new platforms, together with their associated command and combat systems, provides a sustainable business in technical services and mid-life upgrades.
The Land (UK) business is underpinned by the 15-year Munitions Acquisition Supply Solution partnering agreement with the Ministry of Defence secured in 2008 and continues to pursue upgrade programmes with a focus on the Challenger 2 main battle tank.
Platforms & Services (International)
Platforms & Services (International), with 13,700 employees(1) , comprises the Group's businesses in Saudi Arabia, Australia and Oman, together with its 37.5% interest in the pan--European MBDA joint venture.
In Saudi Arabia, the business provides operational capability support to the country's air and naval forces through UK/Saudi government-to-government programmes. The Saudi British Defence Co--operation Programme and Salam Typhoon project provide for multi-year contracts between the governments.
In Australia, the business delivers production, upgrade and support programmes for customers in the defence and commercial sectors across the air, maritime and land domains. Services contracts include the provision of sustainment, training solutions and upgrades.
In Oman, the business is developing its position building on a long history of relationships with the Omani armed forces through the provision, support and upgrade of defence platforms and cyber security services. Business generated in Oman is executed through our relevant reporting segments.
MBDA is a leading global prime contractor of missiles and missile systems across the air, maritime and land domains.
Operational and strategic highlights
- BAE Systems celebrated 50 years in Saudi Arabia
- 11 Typhoon aircraft delivered on the Salam programme in the year
- Continued provision of support agreed under the Saudi British Defence Co-operation Programme to the Royal Saudi Air Force and Royal Saudi Naval Forces through to 2021, against which we have booked initial order intake in 2016
- BAE Systems Australia selected to provide maintenance, repair, overhaul and upgrade to support a range of F-35 Lightning II system components
- Awarded a contract for the Risk Mitigation Activity phase of the Land 400 vehicle competition in Australia
- Contracts totalling A$430m (GBP252m) awarded for sustainment and upgrade of Anzac Class frigates under the Warship Asset Management Alliance
- UK Ministry of Defence awarded MBDA a contract for additional Common Anti-air Modular Missiles
- MBDA signed two significant contracts in Qatar for naval air defence and coastal battery defence systems
- MBDA secured weapons package orders with India as part of agreed export contracts for Rafale aircraft
Financial performance
Financial performance measures as defined by the Group
2016 2015
----------------------------- ---- --------- ---------
Sales KPI GBP3,943m GBP3,742m
----------------------------- ---- --------- ---------
Underlying EBITA KPI GBP400m GBP335m
----------------------------- ---- --------- ---------
Return on sales 10.1% 9.0%
----------------------------------- --------- ---------
Operating business cash flow KPI GBP435m GBP164m
----------------------------- ---- --------- ---------
Order intake(1) KPI GBP6,175m GBP3,046m
----------------------------- ---- --------- ---------
Order backlog(1) GBP13.1bn GBP10.2bn
----------------------------------- --------- ---------
Financial performance measures defined in IFRS(2)
2016 2015
------------------------------------ --------- ---------
Revenue GBP3,037m GBP2,957m
------------------------------------ --------- ---------
Operating profit GBP365m GBP299m
------------------------------------ --------- ---------
Return on revenue 12.0% 10.1%
------------------------------------- --------- ---------
Cash flow from operating activities GBP473m GBP193m
------------------------------------- --------- ---------
- Sales of GBP3.9bn were 5% up over 2015. The trading increase comes from the higher levels of support to the Salam Typhoon aircraft now in service and weapon volumes from MBDA.
- Underlying EBITA of GBP400m (2015 GBP335m) has moved the return on sales back above 10% (2015 9.0%). The 2015 result included charges totalling GBP53m in respect of the impairment and rationalisation taken in the Australian business.
- Operating business cash flow was strong at GBP435m (2015 GBP164m), although accelerated receipts from 2017 on Saudi support and the MBDA Qatar programme were major factors.
- Order backlog(1) increased to GBP13.1bn (2015 GBP10.2bn) as initial order intake was booked for the renewal of the five-year support contract in Saudi Arabia.
1. Including share of equity accounted investments.
2. International Financial Reporting Standards.
P06-07 Alternative performance measure definitions
Operational performance
Saudi Arabia
On the Salam Typhoon programme, 68 of the contracted 72 aircraft had been delivered at 31 December. Typhoon capability expansion is progressing to schedule.
The Typhoon support contracts are operating well, meeting all contractual metrics.
Through the Saudi British Defence Co-operation Programme, the business continues to support the operational capabilities of the Royal Saudi Air Force and Royal Saudi Naval Forces. The contract for Hawk aircraft signed in 2012 continues on schedule, with 14 aircraft delivered and accepted at 31 December. Manufacturing for the second batch of 22 aircraft, awarded in 2015, is progressing to schedule. Under this contract, we will undertake the final assembly of these aircraft in Saudi Arabia.
Under the Royal Saudi Naval Forces' Minehunter mid-life update programme, acceptance of the second ship was completed in the second half of the year. Work on the third and final ship is progressing to plan, with acceptance expected in the second half of 2017.
Agreement has been reached with the Saudi Arabian government for BAE Systems to continue to provide support services to the Royal Saudi Air Force and Royal Saudi Naval Forces under the Saudi British Defence Co-operation Programme for a further five years, against which we have booked initial order intake in 2016. Discussions with the UK government and the Saudi Arabian customer are under way to define the details of this follow-on contract.
Under the planned reorganisation of our portfolio of interests in a number of industrial companies in Saudi Arabia, Riyadh Wings Aviation Academy LLC has acquired a 4.1% shareholding in a Group subsidiary, Overhaul and Maintenance Company, and is expected to acquire a further interest up to a maximum of 49%. The reorganisation supports our strategy to expand the customer base of our In-Kingdom Industrial Participation programme, promoting training, development and employment opportunities in line with Vision 2030.
The Saudi Arabian In-Kingdom Industrial Participation programme continues to make progress. During 2016, there has been further capability and knowledge transfer on the Typhoon platform and planning is well advanced for the transfer of other capabilities and work into our In-Kingdom partner companies. All of these activities are aligned with our long-term industrialisation strategy, as well as the Saudi Arabian government's National Transformation Plan and Vision 2030.
Australia
The consolidation of operating divisions announced in 2015, from three to two, was completed during the year.
We have continued to provide in-service support to the Navy's two Landing Helicopter Docks under a four-year support contract awarded in 2014. Final acceptance of these vessels is scheduled in 2017.
The fifth Anzac Class frigate to be modernised under the current Anti-Ship Missile Defence programme, HMAS Parramatta, has completed final sea trials and has been accepted into service by the Commonwealth. Completion of the upgrade programme is expected in 2017.
In April, the Australian government signed an agreement for the sustainment and upgrade of the Anzac Class frigates under the Warship Asset Management Alliance. We are a significant participant and the agreement underpins our engineering and complex project management capabilities. We were awarded contracts totalling A$430m (GBP252m) in the year.
In April, the Australian government announced that our Type 26 Global Combat Ship had been shortlisted as one of three designs for its SEA 5000 Future Frigate programme and, in August, a contract was signed with the Commonwealth to further refine the design as part of a competitive evaluation process.
In November, BAE Systems was chosen to provide maintenance, repair, overhaul and upgrade services to support a range of system components on the F-35 Lightning II aircraft. Our scope of work involves global sustainment services for life support components and sustainment services for the South Pacific region across avionics and digital mission systems and electrical systems components. This award follows our selection, in 2015, as the Pacific regional prime contractor to undertake airframe maintenance, repair, overhaul and upgrade.
In May, the Royal Australian Air Force celebrated its Hawk aircraft fleet achieving the significant milestone of more than 100,000 flying hours. We support the fleet as the systems integrator, including logistics, maintenance, repair, overhaul and upgrade. From July, our scope of work was expanded to include operational maintenance, a reflection of this successful long-term partnering arrangement.
In 2016, the government announced that we were one of two tenderers successfully down-selected on the Land 400 Phase 2 Combat Reconnaissance Vehicle programme.
We are engaged in discussions with the Australian government regarding the forward delivery schedule for the delayed JP 2008 Phase 3F programme for enhanced satellite communications services to the Australian Defence Force.
Oman
The Oman Typhoon and Hawk aircraft programme, being undertaken by Platforms & Services (UK), is on track for commencement of aircraft deliveries in 2017. Separately, we continue to fulfil our legacy industrial participation obligations in Oman through delivery of an agreed training and knowledge transfer programme.
MBDA
In 2015, the German government announced its intention to acquire a ground-based air defence system based upon the Medium Extended Air Defence System missile defence system being developed by MBDA in partnership with Lockheed Martin. MBDA has now submitted its proposal for the development of this system.
In a significant development for the Aster surface-to-air missile family, France and Italy have jointly launched development of the Aster 30 Block 1 NT (New Technologies) missile which will provide enhanced capabilities against the ballistic missile threat.
MBDA is responsible for the delivery of the majority of the UK's complex weapons requirements. During the year, a number of contracts have been awarded to MBDA, including a contract to supply Advanced Short-Range Air-to-Air Missiles (ASRAAM) for F-35 Lightning II aircraft, a development phase contract for SPEAR 3 (a multi-purpose stand--off strike weapon for the F-35 Lightning II aircraft), and a demonstration and manufacture contract for the supply of the Sea Ceptor air defence weapon system for the Type 26 frigate.
The UK Ministry of Defence awarded MBDA a contract for additional Common Anti-air Modular Missiles to support its land requirements.
The Meteor Beyond Visual Range Air-to-Air Missile achieved its most significant milestone to date during the Farnborough International Airshow in 2016 when it was officially declared in operational service on Swedish Air Force Gripen JAS 39 combat jets.
Two significant contracts were signed with Qatar, including the supply of Aster/VL Mica air defence systems and the Exocet MM40 Block 3 anti-ship missile for the Naval surface fleet, as well as a Missile Coastal Defence System.
MBDA has secured an aircraft weapons package contract from India and continues to pursue weapons package orders as part of export contracts for Typhoon and other aircraft platforms.
Looking forward
In the Kingdom of Saudi Arabia, following agreement of the budget for the next five years of the Saudi British Defence Co-operation Programme, we expect to sustain our long-term presence through delivering current programmes, further industrialisation and developing new business in support of the Saudi military forces. We are focused on our ongoing commitment to support the national objectives of local skills and technology, increasing employment and developing an indigenous defence industry, and will structure our business and portfolio of interests in Saudi Arabia to meet this long-term strategy.
In Australia, the business is now structured around long-term sustainment and upgrade activities and we are progressing further opportunities with the Australian government to provide leading defence build and support capabilities.
MBDA has a strong order book that underpins future growth built on the effective partnerships it has established with its domestic customers and recent export success. The business will look to further this domestic and export strategy in the air, maritime and land domains.
Page references used above refer to the Annual Report 2016 that can be viewed on the Company's website.
Consolidated income statement
for the year ended 31 December
2016 2015
----------------- -----------------
Total Total
Notes GBPm GBPm GBPm GBPm
----------------------------------- ----- ------- -------- ------- --------
Continuing operations
------- -------
Sales 1 19,020 17,904
Deduct Share of sales by
equity accounted investments 1 (2,427) (2,719)
Add Sales to equity accounted
investments 1 1,197 1,602
------- -------
Revenue 1 17,790 16,787
Operating costs 2 (16,274) (15,622)
Other income 4 136 227
----------------------------------- ----- ------- -------- ------- --------
Group operating profit 1,652 1,392
Share of results of equity
accounted investments 1 90 110
----------------------------------- ----- ------- -------- ------- --------
Underlying EBITA 1 1,905 1,683
Non-recurring items 1 (12) 26
------- -------
EBITA 1,893 1,709
Amortisation of intangible
assets 1 (87) (108)
Impairment of intangible
assets 1 - (78)
Financial (expense)/income
of equity accounted investments 5 (28) 3
Taxation expense of equity
accounted investments 6 (36) (24)
------- -------
Operating profit 1 1,742 1,502
------- -------
Financial income 713 241
Financial expense (1,304) (653)
------- -------
Net finance costs 5 (591) (412)
----------------------------------- ----- ------- -------- ------- --------
Profit before taxation 1,151 1,090
Taxation expense 6 (213) (147)
----------------------------------- ----- ------- -------- ------- --------
Profit for the year 938 943
----------------------------------- ----- ------- -------- ------- --------
Attributable to:
Equity shareholders 913 918
Non-controlling interests 25 25
----------------------------------- ----- ------- -------- ------- --------
938 943
----------------------------------- ----- ------- -------- ------- -------- Earnings per share 7 Basic earnings per share 28.8p 29.0p Diluted earnings per share 28.7p 28.9p ----------------------------------- ----- ------- -------- ------- --------
Consolidated statement of comprehensive income
for the year ended 31 December
2016 2015(1)
-------------------------------- ------------------------------
Other Retained Other Retained
reserves(2) earnings Total reserves(2) earnings Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------- ----- ------------ --------- ------- ------------ --------- -----
Profit for the year - 938 938 - 943 943
------------------------------------------- ----- ------------ --------- ------- ------------ --------- -----
Other comprehensive income
Items that will not be
reclassified to the income
statement:
Subsidiaries:
Remeasurements on retirement
benefit schemes - (1,468) (1,468) - 864 864
Tax on items that will
not be reclassified to
the income statement 6 - 260 260 - (258) (258)
Equity accounted investments
(net of tax) - (53) (53) - 18 18
Items that may be reclassified
to the income statement:
Subsidiaries:
Currency translation
on foreign currency net
investments 1,287 - 1,287 260 - 260
Reclassification of cumulative
currency translation
reserve on disposal - - - 20 - 20
Fair value loss on available-for-sale
financial assets - - - - (1) (1)
Amounts credited to hedging
reserve 96 - 96 11 - 11
Tax on items that may
be reclassified to the
income statement 6 (17) - (17) (2) - (2)
Equity accounted investments
(net of tax) 45 - 45 (74) - (74)
------------------------------------------- ----- ------------ --------- ------- ------------ --------- -----
Total other comprehensive
income for the year (net
of tax) 1,411 (1,261) 150 215 623 838
------------------------------------------- ----- ------------ --------- ------- ------------ --------- -----
Total comprehensive income
for the year 1,411 (323) 1,088 215 1,566 1,781
------------------------------------------- ----- ------------ --------- ------- ------------ --------- -----
Attributable to:
Equity shareholders 1,408 (348) 1,060 216 1,541 1,757
Non-controlling interests 3 25 28 (1) 25 24
------------------------------------------- ----- ------------ --------- ------- ------------ --------- -----
1,411 (323) 1,088 215 1,566 1,781
------------------------------------------- ----- ------------ --------- ------- ------------ --------- -----
1. Re-presented in accordance with Amendments to IAS 1: Disclosure Initiative.
2. An analysis of other reserves is provided in note 22.
Consolidated statement of changes in equity
for the year ended 31 December
Attributable to equity
holders of the parent
--------------------------------------------------
Issued
share Share Other Retained Non-controlling Total
capital premium reserves(1) earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- -------- ------------ --------- ----- --------------- -------
At 1 January 2016 87 1,249 5,277 (3,624) 2,989 13 3,002
Profit for the year - - - 913 913 25 938
Total other comprehensive
income for the year - - 1,408 (1,261) 147 3 150
Share-based payments
(inclusive of tax) - - - 59 59 - 59
Net sale of own shares - - - 3 3 - 3
Ordinary share dividends - - - (670) (670) (24) (694)
Partial disposal of shareholding
in subsidiary undertaking - - - (3) (3) 9 6
--------------------------------- -------- -------- ------------ --------- ----- --------------- -------
At 31 December 2016 87 1,249 6,685 (4,583) 3,438 26 3,464
--------------------------------- -------- -------- ------------ --------- ----- --------------- -------
At 1 January 2015 87 1,249 5,061 (4,555) 1,842 35 1,877
Profit for the year - - - 918 918 25 943
Total other comprehensive
income for the year - - 216 623 839 (1) 838
Share-based payments - - - 44 44 - 44
Net sale of own shares - - - 1 1 - 1
Ordinary share dividends - - - (655) (655) (40) (695)
Disposal of non-controlling
interest - - - - - (6) (6)
--------------------------------- -------- -------- ------------ --------- ----- --------------- -------
At 31 December 2015 87 1,249 5,277 (3,624) 2,989 13 3,002
--------------------------------- -------- -------- ------------ --------- ----- --------------- -------
1. An analysis of other reserves is provided in note 22.
Consolidated balance sheet
as at 31 December
2016 2015
Notes GBPm GBPm
----------------------------------------- ----- -------- --------
Non-current assets
Intangible assets 8 11,264 10,117
Property, plant and equipment 9 2,098 1,698
Investment property 10 110 120
Equity accounted investments 11 299 250
Other investments 6 6
Other receivables 12 351 275
Retirement benefit surpluses 20 223 193
Other financial assets 13 345 107
Deferred tax assets 14 1,251 985
----------------------------------------- ----- -------- --------
15,947 13,751
----------------------------------------- ----- -------- --------
Current assets
Inventories 15 744 726
Trade and other receivables including
amounts due from customers for contract
work 12 3,305 2,940
Current tax 5 4
Other financial assets 13 204 105
Cash and cash equivalents 16 2,769 2,537
Assets held for sale 2 20
----------------------------------------- ----- -------- --------
7,029 6,332
----------------------------------------- ----- -------- --------
Total assets 17 22,976 20,083
----------------------------------------- ----- -------- --------
Non-current liabilities
Loans 18 (4,425) (3,775)
Other payables 19 (1,027) (1,020)
Retirement benefit obligations 20 (6,277) (4,694)
Other financial liabilities 13 (102) (72)
Deferred tax liabilities 14 (10) (13)
Provisions 21 (372) (354)
----------------------------------------- ----- -------- --------
(12,213) (9,928)
----------------------------------------- ----- -------- --------
Current liabilities
Loans and overdrafts 18 - (237)
Trade and other payables 19 (6,540) (6,162)
Other financial liabilities 13 (212) (130)
Current tax (311) (315)
Provisions 21 (234) (301)
Liabilities held for sale (2) (8)
----------------------------------------- ----- -------- --------
(7,299) (7,153)
----------------------------------------- ----- -------- --------
Total liabilities (19,512) (17,081)
----------------------------------------- ----- -------- --------
Net assets 3,464 3,002
----------------------------------------- ----- -------- --------
Capital and reserves
Issued share capital 22 87 87
Share premium 1,249 1,249
Other reserves 22 6,685 5,277
Retained earnings - deficit (4,583) (3,624)
----------------------------------------- ----- -------- --------
Total equity attributable to equity
holders of the parent 3,438 2,989
Non-controlling interests 26 13
----------------------------------------- ----- -------- --------
Total equity 3,464 3,002
----------------------------------------- ----- -------- --------
Approved by the Board on 22 February 2017 and signed on its behalf by:
I G King P J Lynas Chief Executive Group Finance Director
Consolidated cash flow statement
for the year ended 31 December
2016 2015(1)
Notes GBPm GBPm
---------------------------------------------- ----- ----- -------
Profit for the year 938 943
Taxation expense 6 213 147
Research and development expenditure
credits 4 (22) (65)
Share of results of equity accounted
investments 1 (90) (110)
Net finance costs 5 591 412
Depreciation, amortisation and impairment 2 345 460
Profit on disposal of property, plant
and equipment 2,4 (5) (28)
Profit on disposal of investment property 2,4 (12) (41)
Profit on disposal of non-current
other investments - (1)
Loss on disposal of businesses 2 - 24
Cost of equity-settled employee share
schemes 55 44
Movements in provisions (122) (139)
Decrease in liabilities for retirement
benefit obligations (214) (234)
Decrease/(increase) in working capital:
Inventories 95 (6)
Trade and other receivables (93) 60
Trade and other payables (263) (542)
Taxation paid (187) (116)
---------------------------------------------- ----- ----- -------
Net cash flow from operating activities 1,229 808
---------------------------------------------- ----- ----- -------
Dividends received from equity accounted
investments 11 38 41
Net interest paid (200) (173)
Purchase of property, plant and equipment,
and investment property (408) (359)
Purchase of intangible assets (82) (54)
Proceeds from sale of property, plant
and equipment, and investment property 45 136
Proceeds from sale of non-current
other investments - 1
Purchase of subsidiary undertakings - (5)
Equity accounted investment funding 11 (5) (8)
Proceeds from sale of subsidiary undertakings 6 34
Cash and cash equivalents disposed
of with subsidiary undertakings - (13)
---------------------------------------------- ----- ----- -------
Net cash flow from investing activities (606) (400)
---------------------------------------------- ----- ----- -------
Net sale of own shares 3 1
Equity dividends paid 22 (670) (655)
Dividends paid to non-controlling
interests (24) (40)
Cash inflow from matured derivative
financial instruments 480 12
Cash inflow from movement in cash
collateral 32 3
Cash inflow from loans - 1,625
Cash outflow from repayment of loans (286) (1,135)
---------------------------------------------- ----- ----- -------
Net cash flow from financing activities (465) (189)
---------------------------------------------- ----- ----- -------
Net increase in cash and cash equivalents 158 219
Cash and cash equivalents at 1 January 2,537 2,313
Effect of foreign exchange rate changes
on cash and cash equivalents 76 5
---------------------------------------------- ----- ----- -------
Cash and cash equivalents at 31 December 16 2,771 2,537
---------------------------------------------- ----- ----- -------
Comprising:
Cash and cash equivalents 2,769 2,537
Cash classified as held for sale 2 -
---------------------------------------------- ----- ----- -------
Cash and cash equivalents at 31 December 16 2,771 2,537
---------------------------------------------- ----- ----- -------
1. Re-presented to reclassify interest paid from operating to investing activities.
Notes to the Group accounts
28. Related party transactions
The Group has a related party relationship with its directors and key management personnel (see below), equity accounted investments (note 11) and pension schemes (note 20).
Transactions occur with the equity accounted investments in the normal course of business, are priced on an arm's-length basis and settled on normal trade terms. The more significant transactions are disclosed below:
Sales Purchases Amounts Amounts
to from owed by owed to
related related related related Management
party party party party(1) recharges(1)
------------ ------------ ------------ ------------ ---------------
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Related party GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ------- ------
Advanced Electronics
Company Limited 27 22 95 46 - - - - - -
CTA International
SAS 6 15 - - 4 11 - - - -
Eurofighter Jagdflugzeug
GmbH 997 1,417 3 - 41 37 126 65 - -
FADEC International
LLC 79 72 - - - - - - - -
Gripen International
KB - - - - 18 19 16 14 - -
MBDA SAS(2) 24 23 199 286 2 6 608 367 16 17
Panavia Aircraft
GmbH 64 53 79 47 4 2 - - - -
------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ------- ------
1,197 1,602 376 379 69 75 750 446 16 17
------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ------- ------
1. Also relates to disclosures under IAS 24, Related Party Disclosures, for the parent company, BAE Systems plc. At 31 December 2016, GBP631m (2015 GBP405m) was owed by BAE Systems plc and GBP119m (2015 GBP41m) by other Group subsidiaries.
2. Amounts owed to related party excludes GBP285m (2015 GBP217m) included within amounts due to long-term contract customers.
The Group considers key management personnel as defined under IAS 24, Related Party Disclosures, to be the members of the Group's Executive Committee and the Company's non-executive directors. Fuller disclosures on directors' remuneration are set out in the Annual remuneration report on pages 84 to 98. Total emoluments for directors and key management personnel charged to the Consolidated income statement were:
2016 2015
GBP'000 GBP'000
----------------------------- -------- --------
Short-term employee benefits 19,389 14,831
Post-employment benefits 1,931 2,021
Share-based payments 5,744 4,144
----------------------------- -------- --------
27,064 20,996
----------------------------- -------- --------
Note and page references used above refer to the Annual Report 2016 that can be viewed on the Company website.
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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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March 28, 2017 07:00 ET (11:00 GMT)
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