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8	8	* BAE Systems provides advanced defence technology protects people and national security, and keeps critical information and infrastructure secure.
9	9	* The company employ a skilled workforce of 89,600 people in more than 40 countries.
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11		-
12	12	[[image:BAESF0.png||height="166" width="720"]]
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17	17	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.{{footnote}}https://www.baesystems.com/en/our-company/about-us{{/footnote}}
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19	19
20		-[[image:BAESF0.png]]
	19	+[[image:BAESF1.jpg||alt="BAESF0.png"]]
21	21
22	22
23		-Locations and Markets
	22	+== Locations and Markets ==
24	24
25		-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.
	24	+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.{{footnote}}https://www.baesystems.com/en/our-company/about-us/where-we-operate{{/footnote}}
26	26
27		-[[https:~~/~~/www.baesystems.com/en/our-company/about-us/where-we-operate>>url:https://www.baesystems.com/en/our-company/about-us/where-we-operate]]
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29		-<map>
	27	+[[image:BAESF2.png]]
30	30
31	31
32		-US
	30	+=== US ===
33	33
34		-The US continues to represent the single largest defence market in the world. BAE Systems is a top ten defence supplier in the US.
	32	+The US continues to represent the single largest defence market in the world. BAE Systems is a top ten defence supplier in the US.{{footnote}}https://investors.baesystems.com/~/media/Files/B/Bae-Systems-Investor-Relations-V3/PDFs/results-and-reports/results/2021/bae-ar-complete-2020.pdf{{/footnote}}
35	35
36		-[[https:~~/~~/investors.baesystems.com/~~~~/media/Files/B/Bae-Systems-Investor-Relations-V3/PDFs/results-and-reports/results/2021/bae-ar-complete-2020.pdf>>url:https://investors.baesystems.com/~~/media/Files/B/Bae-Systems-Investor-Relations-V3/PDFs/results-and-reports/results/2021/bae-ar-complete-2020.pdf]]
37	37
38	38	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.
39	39
	37	+
40	40	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.
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42	42
43		-UK
	41	+=== UK ===
44	44
45	45	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.
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	45	+
47	47	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
48	48
49	49
50		-Saudi Arabia
	49	+=== Saudi Arabia ===
51	51
52	52	The Kingdom of Saudi Arabia continues to be a leading military power and one of the largest defence markets globally.
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	53	+
54	54	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.
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56	56
57		-Australia
	57	+=== Australia ===
58	58
59	59	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.
60	60
	61	+
61	61	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.
62	62
63		-International
64	64
	65	+[[image:BAESF3.jpg]]
	66	+
	67	+
	68	+=== International ===
	69	+
65	65	BAE Systems has many strong and enduring relationships in international markets
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	72	+
67	67	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.
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	75	+
69	69	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.
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	78	+
71	71	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.
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	81	+
73	73	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.
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	84	+
75	75	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.
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	88	+[[image:BAESF4.jpg]]
78	78
79		-Products & Services
80	80
81		-Future technologies
	91	+= Products & Services =
82	82
	93	+== Future technologies ==
	94	+
83	83	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.
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85	85
86		-Air
	98	+== Air ==
87	87
88	88	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.
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94	94	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.
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96	96
97		-Land
	109	+== Land ==
98	98
99	99	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.
100	100
101	101
102		-Cyber security & intelligence
	114	+== Cyber security & intelligence ==
103	103
104	104	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.
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106	106
107		-Electronics
	119	+== Electronics ==
108	108
109	109	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.
110	110
111	111
112		-Services
	124	+== Services ==
113	113
114	114	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.
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116	116
117		-Sea
	129	+== Sea ==
118	118
119	119	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.
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121	121
122		-Financial Highlights
	134	+[[image:BAESF5.jpg]]
123	123
124		-Sales increased by £0.8bn to £20.9bn (2019 £20.1bn), a 4% increase on a constant currency basis.
125	125
126		-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%.
127	127
128		-Revenue increased by £1.0bn to £19.3bn (2019 £18.3bn).
	138	+= Financial Highlights =
129	129
130		-Operating profit increased by £31m to £1,930m (2019 £1,899m).
	140	+* Sales increased by £0.8bn to £20.9bn (2019 £20.1bn), a 4% increase on a constant currency basis.
	141	+* 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%.
	142	+* Revenue increased by £1.0bn to £19.3bn (2019 £18.3bn).
	143	+* Operating profit increased by £31m to £1,930m (2019 £1,899m).
	144	+* 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.
	145	+* Amortisation of intangible assets is £137m (2019 £109m), the increase mainly a result of intangible assets arising from the acquisitions.
	146	+* Impairment of intangible assets in 2020 is £4m (2019 £6m).
	147	+* 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.
	148	+* 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.
	149	+* Underlying earnings per share for the year increased by 2% to 46.8p (2019 45.8p), excluding the one-off tax benefit).
	150	+* Basic earnings per share was 40.7p (2019 46.4p).
	151	+* 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
131	131
132		-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.
133	133
134		-Amortisation of intangible assets is £137m (2019 £109m), the increase mainly a result of intangible assets arising from the acquisitions.
	154	+[[image:BAESF6.png]]
135	135
136		-Impairment of intangible assets in 2020 is £4m (2019 £6m).
137	137
138		-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.
	157	+== Half-yearly Results 2021 ==
139	139
140		-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.
	159	+* Sales in the first half increased to £10.0bn (2020 £9.9bn), up 6% on a constant currency basis.{{footnote}}https://investors.baesystems.com/~/media/Files/B/Bae-Systems-Investor-Relations-V3/PDFs/results-and-reports/results/2021/2021-half-year-results-announcement.pdf{{/footnote}}
	160	+* Underlying EBIT was £1,028m (2020 £849m), up 21% on last year, or 27% on a constant currency basis.
	161	+* Revenue increased to £9.3bn (2020 £9.2bn), up 2%
141	141
142		-Underlying earnings per share for the year increased by 2% to 46.8p (2019 45.8p), excluding the one-off tax benefit).
143	143
144		-Basic earnings per share was 40.7p (2019 46.4p).
145		-
146		-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
147		-
148		-
149		-BAE Systems plc Half-yearly Report 2021
150		-
151		-Sales in the first half increased to £10.0bn (2020 £9.9bn), up 6% on a constant currency basis.
152		-
153		-[[https:~~/~~/investors.baesystems.com/~~~~/media/Files/B/Bae-Systems-Investor-Relations-V3/PDFs/results-and-reports/results/2021/2021-half-year-results-announcement.pdf>>url:https://investors.baesystems.com/~~/media/Files/B/Bae-Systems-Investor-Relations-V3/PDFs/results-and-reports/results/2021/2021-half-year-results-announcement.pdf]]
154		-
155		-
156		-Underlying EBIT was £1,028m (2020 £849m), up 21% on last year, or 27% on a constant currency basis.
157		-
158		-
159		-Revenue increased to £9.3bn (2020 £9.2bn), up 2%
160		-
161	161	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.
162	162
	166	+
163	163	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.
164	164
	169	+
165	165	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.
166	166
	172	+
167	167	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.
168	168
	175	+
169	169	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.
170	170
171	171
	179	+**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.
172	172
173		-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.
174	174
175	175	“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.
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	184	+
177	177	“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.”
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	188	+= References =
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181		-References
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183	183	{{putFootnotes/}}