Summary

  • BAE Systems is one of the largest global defence companies.
  • BAE Systems provides advanced defence technology protects people and national security, and keeps critical information and infrastructure secure.
  • The company employ a skilled workforce of 89,600 people in more than 40 countries.

BAESF0.png

Company Overview

BAE Systems (LSE:BA, OTC:BAESF) provides advanced defence technology protects people and national security, and keeps critical information and infrastructure secure. The company search for new ways to provide its customers with a competitive edge across the air, maritime, land and cyber domains. The company employ a skilled workforce of 89,600 people in more than 40 countries, and work closely with local partners to support economic development by transferring knowledge, skills and technology.1

BAESF0.png

Locations and Markets

BAE Systems has leading positions in its principal markets – in the US, UK, the Kingdom of Saudi Arabia and Australia – as well as established positions in a number of other international markets. BAE Systems is one of the largest global defence companies.2

BAESF2.png

US

The US continues to represent the single largest defence market in the world. BAE Systems is a top ten defence supplier in the US.3

The Group’s US-based portfolio is well aligned to customer priorities and growth areas, which the company expect to continue under the new administration. These include electronic warfare, precision-guided munitions, hypersonics and space security, naval ship repair and modernisation services and combat vehicles.

BAE Systems is a leader in advanced electronic systems, real-time intelligence and analysis, naval gun systems, naval ship repair and modernisation and tracked combat vehicles. The company's position is supported by strong positions on a number of franchise US defence programmes, including F-35 Lightning II, M109 self-propelled howitzer, Armored Multi-Purpose Vehicle and Amphibious Combat Vehicle.

UK

BAE Systems is the largest defence company in the UK, with strong and long standing relationships with the Ministry of Defence and its supply chains.

In the UK, the government has re-stated its commitment to meeting the NATO target of spending of at least 2% of Gross Domestic Product on defence. While the government’s Integrated Foreign Policy, Defence and Security Review is due to be published early in 2021, the UK government has made a series of recent programme announcements related to the review and the company welcome the UK government’s increased investment in defence and security

Saudi Arabia

The Kingdom of Saudi Arabia continues to be a leading military power and one of the largest defence markets globally.

Saudi Arabia has a strong commitment to defence and security spending driven by regional security instability. Saudi Arabia’s Vision 2030 strategy to promote in-Kingdom industrialisation and diversification away from reliance on oil continues to shape its activities, in support of Saudi Arabia’s national objectives of technology development, local skills, and the development of an indigenous defence industry and capability. BAE Systems is working with Saudi Arabian Military Industries (SAMI) to explore how the company can collaborate to deliver further In-Kingdom Industrial Participation. This is through the restructuring of the Group’s portfolio of interests in a number of industrial companies, along with sustaining current industrialised capability, and by building on its strong history in Saudi Arabia. The company remain well placed as a leading in-country contractor in support of air defence platforms and training systems for the Royal Saudi Air Force, as well as support for mine countermeasure vessels for the Royal Saudi Naval Forces.

Australia

BAE Systems is the largest defence company in Australia, with strong activities across all domains and the business is set to grow significantly in the coming years as the Hunter Class Frigate programme matures.

Regional instability, the impact of the COVID-19 pandemic, and the rapid pace of military modernisation and technology advancement in the Asia-Pacific region continue to drive the government’s commitment to defence spending, with major recapitalisation programmes underway in the air, maritime and land domains. Underpinned also by its policies of developing a strong, sustainable and secure Australian defence industry and supporting leading-edge technological innovation, the Australian government continues its policy of approving a ten-year funding model for defence. The government announcement in July to increase their ten-year investment in new and upgraded defence capabilities from A$195bn to A$270bn should provide further opportunities to enhance and extend its growth profile.

BAESF3.jpg

International

BAE Systems has many strong and enduring relationships in international markets

Regional security tensions, the growing emphasis on indigenous capabilities and varying economic conditions continue to influence defence spending internationally. BAE Systems has developed and seeks to further relationships with partners and customers in a number of countries.

In Qatar, the build contracts for 24 Typhoon and nine Hawks are progressing well and its relationships are strengthening as the company implement its support and training commitments with the Qatari Armed Forces.

Through its shareholding in MBDA, its position in the missiles and missile systems market continues to grow in European domestic and other international markets. MBDA and the Eurofighter consortium are well placed to benefit from the expected European defence spending increases as a number of countries look to move nearer to their NATO commitments. In addition to Germany’s order for 38 new Typhoon aircraft in November, Germany and Spain are considering future Typhoon orders, and other Typhoon and support opportunities are being pursued in the Middle East and Europe.

BAE Systems has a strong presence in Sweden through BAE Systems Hägglunds supplying and supporting tracked vehicles for international customers, and Sweden is one of the international partners on the Tempest programme.

In Canada, BAE Systems is the warship design partner on the Canadian Surface Combatant programme of 15 ships for the Royal Canadian Navy. BAE Systems is working on other prospects in Canada.

BAESF4.jpg

Products & Services

Future technologies

The company maintain a deep understanding of emerging and game changing technologies so the company can identify the areas of investment that will ensure the company maintain global leading in military, aerospace, and security capabilities. Partnering with academic and industrial leaders the company develop new technologies to support its future product strategies. This enables it to deliver innovative, affordable and effective capabilities to its customers and drive sustainable growth within the business.

Air

BAE Systems Air, BAE Systems has a long and proud heritage in the development, manufacture upgrade and support of world-leading combat and fast jet trainer aircraft.

Today, the company operate across the globe, in multiple markets to support its customers - wherever, whenever and whatever their challenges may be. The company support them across the whole life cycle of the air sector - from design, development and production, through to provision of aircraft, training, support and maintenance.

To achieve this the company collaborate with partners large and small, from within and beyond the defence sector both from the UK and around the globe. The company's international Air sector enables even greater collaboration, as the company work with agility and focus in support of its customers.

Land

The company design, manufacture, upgrade, and support tracked and untracked and amphibious combat vehicles. The company also manufacture ammunition and precision munitions as well as being a supplier of artillery systems and missile launchers, and precision imaging and targeting solutions. The company manage and operate munitions facilities that support and sustain national capabilities.

Cyber security & intelligence

BAE Systems is a leading supplier of cyber, intelligence, and security capabilities to government agencies, and a growing supplier of cyber and network security capabilities to commercial customers.

Electronics

The company develop and deliver a wide range of advanced technologies for the commercial and military electronics markets. The company's portfolio includes flight and engine controls, electronic warfare and night vision systems, surveillance and reconnaissance sensors, mobile networked-communications equipment, systems integration, and environmentally friendly energy management systems.

Services

The company offer the full spectrum of support, from engineering services to information management to commercial, financial, and human resource services, which the company tailor to meet the individual requirements of each customer.

Sea

The company design, manufacture, and support complex surface ships, submarines, torpedoes, radars, and command and combat systems. The company also provide ship repair, maintenance and upgrade services, and are a supplier of naval gun systems, as well as being a provider of commercial shipbuilding.

BAESF5.jpg

Financial Highlights

  • Sales increased by £0.8bn to £20.9bn (2019 £20.1bn), a 4% increase on a constant currency basis.
  • Underlying EBITA increased to £2,132m (2019 £2,117m), giving a return on sales2 of 10.2% (2019 10.5%). Excluding the impact of exchange translation, the increase was 1%.
  • Revenue increased by £1.0bn to £19.3bn (2019 £18.3bn).
  • Operating profit increased by £31m to £1,930m (2019 £1,899m).
  • Non-recurring items in 2020 reflect a credit of £19m. This comprises a settlement gain on a US pension annuity buy-out of £64m, offset by charges relating to acquisitions and disposals of £38m and a Guaranteed Minimum Pension equalisation charge of £7m. Non-recurring charges in 2019 of £27m comprised a £36m software intangible derecognition charge and a net gain relating to acquisitions and disposals of £9m.
  • Amortisation of intangible assets is £137m (2019 £109m), the increase mainly a result of intangible assets arising from the acquisitions.
  • Impairment of intangible assets in 2020 is £4m (2019 £6m).
  • Net finance costs, including equity accounted investments, were £366m (2019 £296m). The underlying interest charge, excluding pension accounting, and fair value and foreign exchange adjustments on financial instruments and investments was £255m (2019 £257m). Net interest expense on the Group’s pension deficit was £70m (2019 £117m). There was a charge in respect of fair value and foreign exchange adjustments of £41m (2019 £78m credit) on exchange translation of US dollar-denominated bonds.
  • Taxation expense, including equity accounted investments, of £273m reflects the Group’s underlying effective tax rate for the year of 17%. The 2019 charge of £147m reflected the Group’s underlying effective tax rate for that year of 19%, less a £161m credit in respect of two items. Following agreements reached in respect of overseas tax matters, a one-off benefit was recognised; and following review of the April 2019 EU Commission decision that concluded that the UK’s Controlled Foreign Company regime partially represented State Aid, a provision was recognised for the estimated exposure.
  • Underlying earnings per share for the year increased by 2% to 46.8p (2019 45.8p), excluding the one-off tax benefit).
  • Basic earnings per share was 40.7p (2019 46.4p).
  • Free cash flow1 was £367m (2019 £850m), which includes the impact of the Group’s £1bn contribution into the UK pension scheme. The remaining inflow reflects the Group’s strong focus on liquidity

BAESF6.png

Half-yearly Results 2021

  • Sales in the first half increased to £10.0bn (2020 £9.9bn), up 6% on a constant currency basis.4
  • Underlying EBIT was £1,028m (2020 £849m), up 21% on last year, or 27% on a constant currency basis.
  • Revenue increased to £9.3bn (2020 £9.2bn), up 2%

Operating profit was £1,303m (2020 £808m), up 61% on last year. Non-recurring items in 2021 comprises a gain on the sale of the Filton and Broughton sites (£182m), gains on disposal of Advanced Electronics Company in the Air sector (£131m, of which £63m is attributable to non-controlling interests) and on disposal of a business in its Electronic Systems segment (£26m), and a £7m gain relating to a historical acquisition. The 2020 expense of £21m represented a £14m impairment charge relating to Platform & Services’ legacy Commercial Shipbuilding business which the business exited in 2018, and advisory fees of £7m relating to the Group’s acquisition and disposal activities.

Amortisation of programme, customer-related and other intangible assets was £43m (2020 £3m), the increase being driven by amortisation charges in the Electronics Systems businesses acquired during 2020.

Net finance costs were £152m (2020 £119m). The underlying interest charge, excluding pension accounting, and fair value and foreign exchange adjustments on financial instruments and investments, was £122m (2020 £127m). There was a charge of £9m (2020 gain of £42m) in respect of rolling hedges on balances with the Group’s subsidiaries and equity accounted investments.

Taxation expense, including taxation expense of equity accounted investments, of £62m (2020 £132m) reflects the Group’s underlying effective tax rate for the period of 18% (2020 19%), plus the tax charge on non-recurring items, less a one-off tax benefit of £94m in respect of agreements reached regarding the exposure arising from the April 2019 European Commission decision regarding the UK’s Controlled Foreign Company regime and the impact of the UK tax rate adjustment.

Basic earnings per share for the period increased by 87% to 31.3p (2020 16.7p). The increase was driven mainly by the higher operating profit and the impact of the one-off tax benefit.

Charles Woodburn, Chief Executive, said: “Thanks to the outstanding efforts of its employees across the Group, BAE Systems has delivered a strong first half performance which underlines its confidence in the full year guidance for top line growth, margin expansion and three-year cash targets.

“BAE Systems is well positioned for sustained growth in the coming years and are ramping up its investments in advanced technologies to deliver capabilities for its customers in the face of an evolving threat environment.

“Following the decisive action taken to accelerate its UK deficit pension payments in 2020, the committed investment in the business coupled with the good operational performance, BAE Systems is driving enhanced cash generation. This enables it today to announce a 5% increase in the interim dividend as well as initiating a new share buyback programme of up to £500m.”

References

  1. ^ https://www.baesystems.com/en/our-company/about-us
  2. ^ https://www.baesystems.com/en/our-company/about-us/where-we-operate
  3. ^ https://investors.baesystems.com/~/media/Files/B/Bae-Systems-Investor-Relations-V3/PDFs/results-and-reports/results/2021/bae-ar-complete-2020.pdf
  4. ^ https://investors.baesystems.com/~/media/Files/B/Bae-Systems-Investor-Relations-V3/PDFs/results-and-reports/results/2021/2021-half-year-results-announcement.pdf
Tags: US:BAESF GB:BA
Created by Asif Farooqui on 2022/01/27 14:37
     

Become a Contributor

If you follow a company closely and would like to share your knowledge, we would love your contributions. Register Now and start editing!

Recently Modified

This site is funded and maintained by Fintel.io