REG - BAE SYSTEMS PLC - Half Yearly Report <Origin Href="QuoteRef">BAES.L</Origin> <Origin Href="QuoteRef">HGGH.L</Origin> - Part 2
30/07/2015 07:03
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Production contract.
Weapon Systems and Munition Operations
In May, BAE Systems was awarded a contract for five Bofors 40 Mk4 naval guns
for the Brazilian Navy's 500T Macae Class patrol vessels. Series production of
the guns has commenced, with a portion of the manufacturing, final assembly
and test to take place in Brazil. Deliveries are scheduled to begin in 2016.
BAE Systems has been contracted by an additional end-user to provide two 57
Mk3 naval gun systems. With this contract, BAE Systems will have ongoing
production for six international users of the 57mm system.
BAE Systems continues to work with the governments of India and the US to
formalise an agreement for the purchase of 145 M777 155mm lightweight
howitzers. BAE Systems has proposed the establishment of an assembly
integration and test facility in partnership with an Indian company, which
supports the Indian prime minister's 'Make in India' initiative.
The business continues to execute the re-baselined Archer artillery system
programme for its Swedish government customer, with delivery of the first
system expected in the second half of the year.
BAE Systems is continuing its partnership with the US Navy on the development
of an Electromagnetic Railgun, with plans to conduct the first test of the
system at sea during 2016.
The US Navy awarded BAE Systems a $53m (£34m) contract in April to provide
canisters for the Vertical Launch System as part of a procurement that began
in 2013 and is expected to run to 2017.
The business continues to execute its contracts to manage operations at the
Holston and Radford Army ammunition plants, and received a $30m (£19m)
contract to modernise the insensitive munitions ingredient facility at
Holston.
US Ship Repair, Modernisation and Shipbuilding
Construction of the new $100m (£64m) dry dock in the San Diego shipyard begins
in the third quarter and other infrastructure improvements are underway.
In the commercial shipbuilding business, process improvement initiatives are
being implemented and the business continues to make progress under the
current experienced leadership team. Three of the eight vessels have now been
accepted by their customers.
BAE Systems Hägglunds
The business is pursuing opportunities with potential customers for the CV90
vehicle. In May, it was announced that the business was unsuccessful in its
bid for Denmark's Armoured Personnel Carrier. In June, BAE Systems announced
that it was starting consultations with trade unions and employee
representatives on a proposed reduction of up to 130 employees.
The business continues to execute contracts for the BvS10 for Sweden and the
CV90 Infantry Fighting Vehicle for Norway. In June, the business delivered the
first production vehicles of the last two of five CV90 variants to the
Norwegian Army customer: the command vehicle and the reconnaissance vehicle.
FNSS
FNSS, the Turkish land systems joint venture, has continued production under
the $559m (£356m) programme to produce 259 8x8 wheeled armoured vehicles for
the Royal Malaysian Army.
Production is also underway on a contract to upgrade M113 tracked armoured
personnel carriers for the Royal Saudi Land Forces. The business is pursuing
other armoured vehicle prospects elsewhere in the Middle East region.
Three competitive proposals have been submitted for combat vehicle programmes
in Turkey and the Middle East. Award decisions are expected in late 2015 and
2016.
Business disposal
In April, the Group completed the sale of its shareholding in Land Systems
South Africa.
Looking forward
The current 2015 fiscal year appropriations legislation included stable
Department of Defense funding and support for major programmes. There are
signs of potential improvement as fiscal year 2016 defence budget proposals
continue to seek funding above previously imposed spending caps.
The business is underpinned by strong positions on key franchise programmes -
on the US Army'sArmored Multi-Purpose Vehicle and Paladin programmes - as well
as US Navy ship repair and modernisation activities. The business continues to
pursue a range of potential domestic and international opportunities in combat
vehicles, weapon systems and maritime support services.
1. Including share of equity accounted investments.
2. Re-presented for the reallocation of the Integrated Electronics & Warfare
Systems activities from Platforms & Services (US) to Cyber & Intelligence.
3. Earnings before amortisation and impairment of intangible assets, finance
costs and taxation expense (EBITA) excluding non-recurring items.
4. Net cash (outflow)/inflow from operating activities after capital
expenditure (net), financial investment and dividends from equity accounted
investments.
5. Comprises funded and unfunded unexecuted customer orders.
REPORTING SEGMENTS: PLATFORMS & SERVICES (UK)
Platforms & Services (UK), with 28,900 employees1, comprises the Group's
UK-based air, maritime, combat vehicle, munitions and shared services
activities.
Six months ended Six months ended Year ended
30 June 2015 30 June 2014 31 December 2014
Sales1 £3,544m £2,844m £6,623m
Underlying EBITA2 £355m £393m £772m
Return on sales 10.0% 13.8% 11.7%
Cash (outflow)/inflow3 £(296)m £(201)m £173m
Order intake1 £2,151m £1,612m £5,386m
Order backlog1 £18.7bn £20.4bn £20.1bn
Financial performance
Sales1 were £3.5bn, an increase of 25% compared with the first half of 2014
(£2.8bn). This year, whilst European Typhoon deliveries have a much more
balanced profile over the year than in 2014, on the Saudi programme, there
were four aircraft deliveries in the first half, with nine scheduled for the
second half.
The business has contracted to supply the radar and Defensive Aids Sub-System
(DASS) equipment for all 88 European Tranche 3 aircraft, which was not the
case for Tranche 2. This has added incremental sales of some £300m, albeit the
Group takes only a small handling fee on this minimal risk element of the
contract.
Return on sales was 10.0% (2014 13.8%). The first half of 2014 benefited from
strong programme execution and risk reduction on the European Typhoon Tranche
2 production contract as deliveries moved towards completion. The business is
now delivering against the Tranche 3 contract. The dilutive impact on return
on sales from trading of the radar and DASS equipment is around 60 basis
points.
The cash outflow3 of £296m (2014 £201m) in the period reflects the consumption
of customer advances on the Omani Typhoon and Hawk programme, the European
Typhoon contract and the Saudi training aircraft contract, as well as
rationalisation costs against provisions created in prior periods.
Order backlog1 reduced to £18.7bn (31 December 2014 £20.1bn) primarily
reflecting sales trading on the Typhoon aircraft, aircraft carrier and Astute
Class submarine programmes.
Operational performance
Military Air & Information
In the six months to 30 June, six Typhoon aircraft were delivered from the UK
final assembly facility, of which four were delivered to Saudi Arabia. In
addition, 14 front fuselage sub-assemblies were delivered in the first half of
the year, comprising eight for aircraft production in the UK and six for the
Group's European partners. The 2014 issues delaying acceptance of Typhoon
Tranche 3 aircraft from the Group's partners in Germany, Italy and Spain have
been resolved.
The Oman Typhoon and Hawk aircraft programme continues to meet all contractual
milestones, with aircraft production schedules on track for commencement of
deliveries in 2017. Steady progress is being made on the construction
programme at the Omani air base.
Good momentum continues in progressively expanding Typhoon's capabilities,
including the integration of the Captor E-Scan radar under a contract secured
during 2014, the integration of additional weapons, including Brimstone 2, and
the initial work on the development of a common weapon launcher.
The business continues to perform well in supporting its UK and European
customers' Typhoon and Tornado aircraft and their operational commitments. The
business supports its UK customer through availability-based service
contracts.
On the F-35 Lightning II programme, the business completed 22 aft fuselage
assembly deliveries to 30 June for the Lot 8 Low-Rate Initial Production
(LRIP) contract. Production of aft fuselage assemblies for the Lot 9 LRIP
contract has commenced. A total of 25 aft fuselage deliveries are planned for
the second half of the year.
Support continues to be provided to users of Hawk trainer aircraft around the
world. The Indian Air Force and Navy have received a further nine and one Hawk
aircraft, respectively, from Hindustan Aeronautics Limited, built under the
Batch 2 licence for 57 aircraft. Commercial discussions continue on the
proposal for an additional 20 Hawk aircraft for the Indian Air Force.
A £25m order has been received from the UK Ministry of Defence for continued
support to the Advanced Jet Trainer facility in North Wales.
Working jointly with Dassault Aviation, progress continues in maturing and
demonstrating critical technology and operational aspects for an Unmanned
Combat Air System.
Maritime
Following the award of contracts during 2014 from the UK Ministry of Defence
covering both the revised target cost arrangements for the delivery of the two
Queen Elizabeth Class aircraft carriers and the construction of three River
Class Offshore Patrol Vessels, work continues towards the start of manufacture
for the anticipated Type 26 frigate programme which will sustain shipbuilding
capability in Glasgow through the next decade.
On the aircraft carrier programme, key systems commissioning has commenced on
HMS Queen Elizabeth and will continue into the second half of 2016. On the
Prince of Wales, the forward island has been lifted and positioned onto the
ship and the final bow unit attached, completing the major assembly work on
the forward part of the ship's hull.
On the River Class Offshore Patrol Vessel contract for the Royal Navy,
construction of the first of class vessel, HMS Forth, continues and
construction of the second ship, HMS Medway, commenced in June. The first ship
is due to be delivered in 2017.
An £859m demonstration phase contract for the Type 26 frigate was secured in
March following conclusion of the assessment phase. The contract covers
detailed design activities and enables BAE Systems to award subcontracts to
approximately 30 companies throughout the supply chain covering procurement of
key equipment for the full manufacture contract anticipated in 2016.
Final acceptance of the third and final Khareef Class corvette for the Royal
Navy of Oman is planned for completion in the third quarter of the year.
The UK Ministry of Defence and its French counterpart have committed to the
design of a new Maritime Mine Counter Measures demonstrator programme, which
may form the basis of a future Royal Navy unmanned system to combat the threat
of underwater sea mines. BAE Systems and Thales are collaborating on the first
phase of the project covering programme definition and design.
The five-year Maritime Support Delivery Framework contract secured in 2014 for
the delivery of services at Portsmouth Naval Base and support to half of the
Royal Navy's surface fleet continues to progress well, with the first year of
cost saving targets delivered.
BAE Systems manages the support, maintenance and upgrade of the Royal Navy's
fleet of Type 45 destroyers. The ships are currently meeting their operational
requirements.
The upgrade of the Spearfish torpedo is continuing to schedule with all key
milestones to date achieved.
HMS Artful, the third of class attack submarine for the Royal Navy, will exit
Barrow later this year, a major milestone for the programme. Construction of
HMS Audacious, the fourth of class, is progressing.
On the Successor submarine, the replacement for the Vanguard Class fleet,
functional and spatial design and development continues to mature as the
programme approaches the production stage. Build phase preparations continue
in support of the UK Ministry of Defence's Main Gate approval, anticipated in
2016, including the commencement of building works as part of a major
programme to redevelop the Barrow manufacturing site. At 30 June, BAE Systems
had over 5,800 employees based in Barrow.
Combat Vehicles (UK)
The business has continued to provide support to previously supplied armoured
and bridging vehicles. The last four Terrier vehicles, of a total of 60 to be
completed to the final accepted build standard, will be completed by the year
end.
A E188m (£133m) contract for 515 cased telescopic canons for the Ministry of
Defence was secured in March by CTA International, a 50% joint venture between
BAE Systems and Nexter.
Munitions
The business continues pricing negotiations for the last five years of its
15-year Munitions Acquisition Supply Solution partnering agreement with the UK
Ministry of Defence, which are expected to conclude in the second half of
2015. Orders totalling £77m were received in the first half of the year.
Looking forward
Platforms & Services (UK) has a strong order backlog of long-term committed
programmes and an enduring support business. Stability across these activities
is expected following the Strategic Defence and Security Review anticipated
later this year.
In Military Air & Information, sales are underpinned by combat aircraft
production on Typhoon and F-35 Lightning II, and in-service support for
existing and legacy combat and Hawk trainer aircraft. There are a number of
opportunities to secure future Typhoon international sales.
In Maritime, sales are underpinned by the manufacture of the Queen Elizabeth
Class aircraft carriers and Astute Class submarines, and the design and
subsequent manufacture of the Type 26 frigate and Successor submarine.
The through-life support of surface ship platforms, together with their
associated command and combat systems, provides a sustainable business in
technical services and mid-life upgrades.
Combat Vehicles (UK) continues to deliver on support programmes in the UK and
international markets. The business is pursuing obsolescence and upgrade
programmes on the Challenger 2 main battle tank and bridging platforms.
The Munitions business is underpinned by the 15-year Munitions Acquisition
Supply Solution partnering agreement with the UK Ministry of Defence.
1. Including share of equity accounted investments.
2. Earnings before amortisation and impairment of intangible assets, finance
costs and taxation expense (EBITA) excluding non-recurring items.
3. Net cash (outflow)/inflow from operating activities after capital
expenditure (net), financial investment and dividends from equity accounted
investments.
REPORTING SEGMENTS: PLATFORMS & SERVICES (INTERNATIONAL)
Platforms & Services (International), with 14,000 employees1, comprises the
Group's businesses in Saudi Arabia, Australia and Oman, together with its
37.5% interest in the pan-European MBDA joint venture.
Six months ended Six months ended Year ended
30 June 2015 30 June 2014 31 December 2014
Sales1 £1,621m £1,576m £3,572m
Underlying EBITA2 £155m £157m £366m
Return on sales 9.6% 10.0% 10.2%
Cash (outflow)/inflow3 £(49)m £541m £881m
Order intake1 £1,112m £761m £3,398m
Order backlog1 £10.7bn £11.4bn £11.6bn
Financial performance
Sales1 for the first six months of £1,621m are 6% higher than in 2014
(£1,576m) on a like-for-like basis. The delivery of equipment to the Royal
Saudi Air Force and milestones on the Australian Landing Helicopter Dock
programme are weighted to the second half year.
Underlying EBITA2 was £155m (2014 £157m), giving a broadly consistent return
on sales of 9.6% (2014 10.0%), after taking a small charge of £5m for some 200
redundancies announced at the Williamstown shipyard during the first half.
There was an operating cash outflow3 of £49m (2014 inflow £541m), which
includes the second payment under the Salam Variation of Price agreement. Some
£200m of receivables were collected in December 2014, ahead of the contracted
due dates.
Order backlog1 reduced to £10.7bn (31 December 2014 £11.6bn) on the trading of
the five-year Saudi support contracts.
Operational performance
Saudi Arabia
On the Salam Typhoon programme, as at 30 June, 49 aircraft have been delivered
to the customer. Work on enhancing Typhoon's capability is progressing to
schedule.
The Typhoon support contract is operating well with all Key Performance
Indicators meeting contractual levels. Several aircraft have completed
scheduled maintenance and upgrade activities.
Through the Saudi British Defence Co-operation Programme, the business
continues to support the operational capabilities of the Royal Saudi Air Force
(RSAF) and Royal Saudi Naval Forces (RSNF). The modernisation of the RSAF's
training aircraft fleet continues on schedule, with all 22 Hawk aircraft in
advanced stages of production and the first aircraft scheduled to fly in
September. At 30 June, a total of 32 of the 55 Pilatus PC-21 aircraft have
been delivered. Training delivery and support under five-year contracts
continues.
The upgrade of Tornado aircraft and equipment procurement are proceeding to
plan.
Under the minehunter mid-life update programme, acceptance of the second ship
back into the RSNF fleet is scheduled for the second half, having originally
been scheduled for the first half of the year. It is anticipated that there
will be a subsequent delay in delivery of the third ship in the programme.
The planned re-organisation of the Group's portfolio of interests in a number
of industrial companies in Saudi Arabia continues. Riyadh Wings Aviation
Academy LLC has contracted to acquire a 49% shareholding in a Group
subsidiary, Overhaul and Maintenance Company. The re-organisation supports BAE
Systems' strategy to expand the customer base of its In-Kingdom Industrial
Participation programme, promoting training, development and employment
opportunities in line with the Saudi National Objective. As part of the
re-organisation, and subject to gaining the necessary regulatory and
stakeholder approvals, the business plans to commence the transfer of a
material proportion of its Saudi-based workforce to one of the local Saudi
industrial companies in the second half of 2015.
The Salam In-Kingdom Industrial Participation programme progresses, with the
Al Salam Aircraft Company being accredited as a repair agent for Typhoon
windscreens and transparencies following Advanced Electronics Company's
accreditation as a repair agent for Typhoon avionics equipment in 2014.
Australia
The first Landing Helicopter Dock warship, HMAS Canberra, was commissioned in
to the operational naval fleet in November 2014 and BAE Systems has commenced
in-service support activities under a four-year contract. The second ship has
commenced sea trials, and is progressing towards delivery and initial
acceptance in the second half of the year.
Construction of ship blocks for the Air Warfare Destroyer (AWD) programme at
the Williamstown shipyard continues, with 13 of the 21 contracted delivered at
30 June. Production continues through to the first half of 2016.
After delivery of the second Landing Helicopter Dock ship and AWD blocks,
there is no contracted shipbuilding programme for the Williamstown shipyard.
BAE Systems continues to engage with the Australian government on its
shipbuilding capability. In the meantime, workforce reductions commenced in
the first half of the year and will continue progressively if no new
shipbuilding work is secured.
The fourth of eight Anzac Class frigates to be modernised under the Anti-Ship
Missile Defence programme is progressing towards sea trials and acceptance in
the second half of the year. The fifth and sixth ships are undergoing their
re-fits at the Henderson shipyard, with scheduled acceptance dates in 2016.
BAE Systems has been selected as the Asia-Pacific regional prime contractor to
undertake airframe maintenance, repair and overhaul for the F-35 Lightning II
programme. This represents a significant growth opportunity and is expected to
underpin the Group's aerospace sustainment activities in Australia over the
next decade and beyond.
Negotiations continue with the Commonwealth to agree a revised schedule for
the delayed delivery of the JP 2008 Phase 3F programme for enhanced satellite
communications services to the Australian Defence Force. The negotiations are
expected to be concluded in the second half year.
Oman
The two major contracts in Oman, the Khareef Class corvettes and the Typhoon
and Hawk aircraft programme, are being undertaken by Platforms & Services
(UK). See Platforms & Services (UK) above for further information on the
operational performance of these contracts.
BAE Systems has provided a substantial proportion of Oman's in-service
military equipment and works closely with the Omani armed forces in supporting
this equipment.
The business continues to fulfil its industrial participation obligations in
Oman through delivery of an agreed training and knowledge transfer programme.
An expansion of this programme has been agreed and, when delivered, will
satisfy all of the Group's industrial participation obligations.
MBDA
Following completion of the Meteor development programme at the end of 2014,
deliveries of production-standard missiles ordered by the six partner nation
customers continue to plan.
The German government has announced its intention to buy the Medium Extended
Air Defence Systems (MEADS) missile defence system being developed by MBDA in
partnership with Lockheed Martin. Contract signature is expected in 2016, with
development expected to be complete within five years. This decision provides
an opportunity for MEADS to compete for significant export opportunities
worldwide.
MBDA has been awarded a substantial weapons order as part of an agreed export
contract for Rafale aircraft in Egypt and a further agreement has been signed
with Qatar. In total, the orders are expected to deliver E1.2bn (£0.9bn) to
BAE Systems, with E0.3bn (£0.2bn) of order intake in the first half.
A significant number of ground-based air defence export campaigns continue to
be pursued in central Europe and the Gulf region.
Looking forward
In the Kingdom of Saudi Arabia, the Group expects to sustain its long-term
presence through delivering current programmes and industrialisation, and
developing new business in support of the Saudi military forces. The planned
re-organisation of the Group's portfolio of interests in a number of
industrial companies in Saudi Arabia is intended to increase growth prospects
and reinforce an ongoing commitment to support the national objectives of
local skills and technology development, increasing employment and developing
an indigenous defence industry.
In Australia, the 2015 Federal Budget statement confirmed the government's
commitment to increasing annual defence expenditure to 2% of Gross Domestic
Product within a decade of the budget. Following delivery of the second
Landing Helicopter Dock in 2015, the Williamstown shipyard needs a follow-on
shipbuilding programme to sustain capability. In the meantime, the Group is
reviewing options for the facility and its operations.
In Oman, the business continues to provide support to its products in service
to position for future requirements.
MBDA continues to build on the effective partnerships it has established with
its domestic customers and has secured export opportunities that underpin
future growth.
1. Including share of equity accounted investments.
2. Earnings before amortisation and impairment of intangible assets, finance
costs and taxation expense (EBITA) excluding non-recurring items.
3. Net cash (outflow)/inflow from operating activities after capital
expenditure (net), financial investment and dividends from equity accounted
investments.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF-YEARLY
FINANCIAL REPORT
Each of the directors (as detailed below) confirms that to the best of his/her
knowledge:
- The condensed set of financial statements has been prepared in accordance
with IAS 34, Interim Financial Reporting, as adopted by the European Union.
- The interim management report above includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules (DTR), being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the DTR, being related party transactions that have taken
place in the first six months of the current financial year and that have
materially affected the financial position or performance of the Company
during that period; and any changes in the related party transactions
described in the last annual report that could do so.
For and on behalf of the directors:
Sir Roger Carr
Chairman
29 July 2015
Directors
Sir Roger Carr Chairman
Ian King Chief Executive
Jerry DeMuro President and Chief Executive Officer of BAE Systems, Inc.
Peter Lynas Group Finance 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
INDEPENDENT REVIEW REPORT TO BAE SYSTEMS PLC
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2015 which comprises the Condensed Consolidated Income Statement, the
Condensed Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Cash Flow Statement, the Condensed Consolidated Balance Sheet,
the Condensed Consolidated Statement of Changes in Equity and the related
explanatory notes. We have read the other information contained in the
half-yearly financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the
condensed set of financial statements.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Disclosure
and Transparency Rules (the DTR) of the UK's Financial Conduct Authority (the
UK FCA). Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
The annual financial statements of the Group are prepared in accordance with
IFRSs as adopted by the European Union (EU). The condensed set of financial
statements included in this half-yearly financial report has been prepared in
accordance with IAS 34, Interim Financial Reporting, as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and consequently
does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2015 is not prepared, in all
material respects, in accordance with IAS 34 as adopted by the EU and the DTR
of the UK FCA.
Ian Starkey
For and on behalf of
KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
29 July 2015
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months ended Six months ended
30 June 2015 30 June 2014
Notes £m £m £m £m
Continuing operations
Combined sales of Group and share of equity accounted investments 2 8,472 7,611
Less: share of sales of equity accounted investments 2 (471) (489)
Revenue 2 8,001 7,122
Operating costs (7,368) (6,493)
Other income 39 46
Group operating profit 672 675
Share of results of equity accounted investments 28 14
Underlying EBITA1 800 802
Non-recurring items2 (24) -
EBITA 776 802
Amortisation of intangible assets (62) (88)
Impairment of intangible assets (3) -
Financial expense of equity accounted investments (9) (21)
Taxation expense of equity accounted investments (2) (4)
Operating profit 2 700 689
Financial income 161 165
Financial expense (353) (313)
Finance costs 3 (192) (148)
Profit before taxation 508 541
Taxation expense (110) (107)
Profit for the period 398 434
Attributable to:
Equity shareholders 390 429
Non-controlling interests 8 5
398 434
Earnings per share 5
Basic earnings per share 12.3p 13.5p
Diluted earnings per share 12.3p 13.5p
1. Earnings before amortisation and impairment of intangible assets, finance
costs and taxation expense (EBITA) excluding non-recurring items.
2. Non-recurring items represents loss on disposal of businesses (see note
4).
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Six months ended
30 June 2015 30 June 2014
Other Retained earnings Total Other Retained earnings Total
reserves £m £m reserves £m £m
£m £m
Profit for the period - 398 398 - 434 434
Other comprehensive income
Items that will not be reclassified to the income statement:
Remeasurements on defined benefit pension schemes:
Subsidiaries - 537 537 - (308) (308)
Equity accounted investments - 6 6 - (19) (19)
Tax on items that will not be reclassified to the income statement - (135) (135) - 69 69
Items that may be reclassified to the income statement:
Currency translation on foreign currency net investments:
Subsidiaries (105) - (105) (161) - (161)
Equity accounted investments (19) - (19) (22) - (22)
Reclassification of cumulative currency translation reserve on disposal 20 - 20 - - -
Amounts charged to hedging reserve (59) - (59) (45) - (45)
Tax on items that may be reclassified to the income statement 14 - 14 10 - 10
Total other comprehensive income for the period (net of tax) (149) 408 259 (218) (258) (476)
Total comprehensive income for the period (149) 806 657 (218) 176 (42)
Attributable to:
Equity shareholders (148) 798 650 (217) 171 (46)
Non-controlling interests (1) 8 7 (1) 5 4
(149) 806 657 (218) 176 (42)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the parent
Issued Share Otherreserves1£m Retained earnings Total Non-controlling Total
share premium £m £m interests equity
capital £m £m £m
£m
At 1 January 2015 87 1,249 5,061 (4,555) 1,842 35 1,877
Profit for the period - - - 390 390 8 398
Total other comprehensive income for the period - - (148) 408 260 (1) 259
Share-based payments - - - 22 22 - 22
Net sale of own shares - - - 3 3 - 3
Ordinary share dividends - - - (389) (389) (21) (410)
Disposal of non-controlling interest - - - - - (6) (6)
At 30 June 2015 87 1,249 4,913 (4,121) 2,128 15 2,143
At 1 January 2014 89 1,249 4,868 (2,825) 3,381 37 3,418
Profit for the period - - - 429 429 5 434
Total other comprehensive income for the period - - (217) (258) (475) (1) (476)
Share-based payments - - - 22 22 - 22
Net purchase of own shares (1) - 1 (237) (237) - (237)
Ordinary share dividends - - - (383) (383) (2) (385)
At 30 June 2014 88 1,249 4,652 (3,252) 2,737 39 2,776
1. The net decrease comprises translation reserve decrease £103m (2014 £182m),
hedging reserve decrease £45m (2014 £35m) and capital redemption reserve
increase £nil (2014 £1m).
CONDENSED CONSOLIDATED BALANCE SHEET
Notes 30 June 31 December 2014
2015 £m
£m
Non-current assets
Intangible assets 9,870 9,983
Property, plant and equipment 1,551 1,589
Investment property 131 129
Equity accounted investments 208 229
Other investments 7 7
Other receivables 336 347
Retirement benefit surpluses 6 178 162
Other financial assets 51 38
Deferred tax assets 1,154 1,327
13,486 13,811
Current assets
Inventories 723 690
Trade and other receivables including amounts due from customers for contract work 3,076 2,850
Current tax 8 7
Other financial assets 52 46
Cash and cash equivalents 1,383 2,308
Assets held for sale 20 76
5,262 5,977
Total assets 18,748 19,788
Non-current liabilities
Loans (2,850) (2,868)
Other payables (678) (932)
Retirement benefit obligations 6 (4,952) (5,530)
Other financial liabilities (103) (79)
Deferred tax liabilities (16) (21)
Provisions (402) (436)
(9,001) (9,866)
Current liabilities
Loans and overdrafts (485) (482)
Trade and other payables (6,258) (6,670)
Other financial liabilities (167) (107)
Current tax (456) (448)
Provisions (230) (315)
Liabilities held for sale (8) (23)
(7,604) (8,045)
Total liabilities (16,605) (17,911)
Net assets 2,143 1,877
Capital and reserves
Issued share capital 87 87
Share premium 1,249 1,249
Other reserves 4,913 5,061
Retained earnings - deficit (4,121) (4,555)
Total equity attributable to equity holders of the parent 2,128 1,842
Non-controlling interests 15 35
Total equity 2,143 1,877
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Notes Six months ended Six months ended
30 June 2015 30 June
£m 2014
£m
Profit for the period 398 434
Taxation expense 110 107
Share of results of equity accounted investments (28) (14)
Finance costs 192 148
Depreciation, amortisation and impairment 184 226
Profit on disposal of property, plant and equipment (5) (4)
Profit on disposal of investment property - (3)
Profit on disposal of non-current other investments (1) -
Loss on disposal of businesses 4 24 -
Cost of equity-settled employee share schemes 22 22
Movements in provisions (125) (124)
Decrease in liabilities for retirement benefit obligations (145) (143)
Increase in working capital:
Inventories (36) (28)
Trade and other receivables (248) (125)
Trade and other payables (599) (526)
Cash outflow from operating activities1 (257) (30)
Interest paid (98) (81)
Taxation paid (60) (65)
Net cash outflow from operating activities (415) (176)
Dividends received from equity accounted investments 37 13
Interest received 4 5
Purchases of property, plant and equipment, and investment property (134) (100)
Purchases of intangible assets (21) (28)
Proceeds from sale of property, plant and equipment, and investment property 27 433
Proceeds from sale of non-current other investments 1 -
Purchase of subsidiary undertakings (net of cash acquired) (6) -
Equity accounted investment funding (2) (1)
Proceeds from sale of subsidiary undertakings (net of cash disposed) 4 22 -
Net cash (outflow)/inflow from investing activities (72) 322
Net sale/(purchase) of own shares 3 (237)
Equity dividends paid 7 (389) (383)
Dividends paid to non-controlling interests (21) (2)
Cash outflow from matured derivative financial instruments (49) (57)
Cash inflow/(outflow) from cash collateral 3 (7)
Cash outflow from repayment of loans - (298)
Net cash outflow from financing activities (453) (984)
Net decrease in cash and cash equivalents (940) (838)
Cash and cash equivalents at 1 January 2,313 2,222
Effect of foreign exchange rate changes on cash and cash equivalents 2 (10)
Cash and cash equivalents at end of period 1,375 1,374
Comprising:
Cash and cash equivalents 1,383 1,374
Overdrafts (8) -
Cash and cash equivalents at end of period 1,375 1,374
1. See reconciliation to operating business cash flow above.
NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL STATEMENTS
1. Preparation
Basis of preparation and statement of compliance
These condensed consolidated half-yearly financial statements of BAE Systems
plc (the Group) have been prepared in accordance with International Accounting
Standard (IAS) 34, Interim Financial Reporting. The annual consolidated
financial statements of the Group are prepared in accordance with EU-endorsed
International Financial Reporting Standards (IFRSs). These condensed
consolidated half-yearly financial statements do not comprise statutory
accounts within the meaning of Section 435 of the Companies Act 2006, and
should be read in conjunction with the Annual Report 2014. The comparative
figures for the year ended 31 December 2014 are not the Group's statutory
accounts for that financial year. Those accounts have been reported upon by
the Group's auditors and delivered to the registrar of companies. The report
of the auditors was unqualified, 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 statements under Section 498 (2) or (3) of the
Companies Act 2006.
The accounting policies adopted in the preparation of these condensed
consolidated half-yearly financial statements to 30 June 2015 are consistent
with the accounting policies applied by the Group in its consolidated
financial statements as at, and for the year ended, 31 December 2014 as
required by the Disclosure and Transparency Rules of the UK's Financial
Conduct Authority.
Changes in accounting policies
IFRS 15, Revenue from Contracts with Customers, issued in May 2014, is not yet
EU endorsed. Management is in the process of reviewing the impact that this
will have on the Group.
IFRS 9, Financial Instruments, issued in July 2014, is not yet EU endorsed. It
is not expected to have a material impact on the Group.
2. Segmental analysis
Sales and revenue by reporting segment
Combined sales of Less: Add: Revenue
Group and share of equity accounted investments sales by equity sales to equity
accounted investments accounted investments
Six Six Six Six Six Six Six Six
months ended months ended months ended months ended months ended months ended months ended months ended
30 June 2015 30 June20141£m 30 June 2015 30 June 2014 30 June 2015 30 June 2014 30 June 2015 30 June20141£m
£m £m £m £m £m £m
Electronic Systems 1,246 1,108 (36) (36) 36 36 1,246 1,108
Cyber & Intelligence 887
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