REG - BAE SYSTEMS PLC - Half Yearly Report <Origin Href="QuoteRef">BAES.L</Origin> <Origin Href="QuoteRef">HGGH.L</Origin> - Part 3
30/07/2015 07:01
- Part 3: For the preceding part double click ID:nRSd4996Ub
814 - - - - 887 814
Platforms & Services (US) 1,328 1,375 (53) (36) - - 1,275 1,339
Platforms & Services (UK) 3,544 2,844 (885) (428) 850 382 3,509 2,798
Platforms & Services (International) 1,621 1,576 (297) (297) - - 1,324 1,279
HQ 128 127 (128) (127) - - - -
8,754 7,844 (1,399) (924) 886 418 8,241 7,338
Intra-group sales/revenue (282) (233) - - 42 17 (240) (216)
8,472 7,611 (1,399) (924) 928 435 8,001 7,122
Reporting segment result
Underlying Non-recurring Amortisation of intangible assets Impairment of intangible assets Reporting segment result
EBITA2 items3
Six months ended Six Six months ended Six months ended Six months ended Six Six months ended Six months ended Six months ended Six
30 June 2015 months ended 30 June 2015 30 June 2014 30 June 2015 months ended 30 June 2015 30 June 2014 30 June 2015 months ended
£m 30 June20141£m £m £m £m 30 June20141£m £m £m £m 30 June20141£m
Electronic Systems 187 143 - - (10) (7) - - 177 136
Cyber & Intelligence 52 60 - - (35) (30) (3) - 14 30
Platforms & Services (US) 92 92 (24) - (7) (7) - - 61 85
Platforms & Services (UK) 355 393 - - (5) (42) - - 350 351
Platforms & Services (International) 155 157 - - (5) (2) - - 150 155
HQ4 (41) (43) - - - - - - (41) (43)
800 802 (24) - (62) (88) (3) - 711 714
Financial expense of equity accounted investments (9) (21)
Taxation expense of equity accounted investments (2) (4)
Operating profit 700 689
Finance costs (192) (148)
Profit before taxation 508 541
Taxation expense (110) (107)
Profit for the period 398 434
1. Re-presented for the reallocation of the Integrated Electronics & Warfare
Systems activities from Platforms & Services (US) to Cyber & Intelligence.
2. Earnings before amortisation and impairment of intangible assets, finance
costs and taxation expense (EBITA) excluding non-recurring items.
3. Non-recurring items represents loss on disposal of businesses (see note
4).
4. In 2014, the HQ reporting segment included a £30m benefit from
re-assessment of a long-term liability and a £17m charge in respect of a US
contract pricing dispute.
3. Finance costs
Six months ended Six months ended 30 June 2014
30 June £m
2015
£m
Finance costs:
Group (192) (148)
Share of equity accounted investments (9) (21)
(201) (169)
Analysed as:
Underlying interest expense:
Group (106) (88)
Share of equity accounted investments (1) (1)
(107) (89)
Other:
Group:
Net interest expense on retirement benefit obligations (95) (76)
Fair value and foreign exchange adjustments on financial instruments and investments 9 16
Share of equity accounted investments:
Net interest expense on retirement benefit obligations (3) (4)
Fair value and foreign exchange adjustments on financial instruments and investments (5) (16)
(201) (169)
4. Disposal of subsidiaries
In April, the Group completed the sale of its 75% holding in BAE Systems Land
Systems South Africa (Pty) Limited for cash consideration of 655 million Rand
(£36m).
£m £m
Cash consideration 36
Transaction costs paid (1)
Cash proceeds 35
Transaction costs accrued (1)
Net proceeds 34
Intangible assets (19)
Property, plant and equipment (9)
Inventories (7)
Trade and other receivables (9)
Deferred tax assets (3)
Cash and cash equivalents (13)
Trade and other payables 8
Deferred tax liabilities 2
Provisions 6
Net assets disposed (44)
Non-controlling interest disposed 6
Cumulative currency translation loss (20)
Loss on disposal of businesses (24)
5. Earnings per share
Six months ended Six months ended
30 June 2015 30 June 2014
£m Basic Diluted pence £m Basic Diluted pence
pence per share pence per share
per share per share
Profit for the period attributable to equity shareholders 390 12.3 12.3 429 13.5 13.5
Add back/(deduct):
Loss on disposal of businesses 24 -
Net interest expense on retirement benefit obligations, post tax 77 64
Fair value and foreign exchange adjustments on financial instruments and investments, post tax (3) -
Amortisation and impairment of intangible assets, post tax 51 70
Underlying earnings, post tax 539 17.1 17.0 563 17.7 17.7
Millions Millions Millions Millions
Weighted average number of shares used in calculating basic earnings per share 3,158 3,158 3,175 3,175
Incremental shares in respect of employee share schemes 9 9
Weighted average number of shares used in calculating diluted earnings per share 3,167 3,184
Underlying earnings per share is presented in addition to that required by IAS
33, Earnings per Share, to align the adjusted earnings measure with the
performance measure reviewed by the directors. The directors consider that
this gives a more appropriate indication of underlying performance.
6. Retirement benefit obligations
UK US and Total
£m other £m
£m
Total IAS 19 deficit at 1 January 2015 (6,066) (746) (6,812)
Actual return on assets, less amounts included in net interest expense (127) (85) (212)
Decrease in liabilities due to changes in financial assumptions and experience 575 197 772
Additional contributions in excess of service cost 160 - 160
Recurring contributions in excess of service cost 34 (8) 26
Past service cost - plan amendments (6) - (6)
Net interest expense (104) (16) (120)
Foreign exchange adjustments - 9 9
Movement in US healthcare schemes - 3 3
Total IAS 19 deficit at 30 June 2015 (5,534) (646) (6,180)
Allocated to equity accounted investments and other participating employers 1,406 - 1,406
Group's share of IAS 19 deficit excluding Group's share of amounts allocated to equity accounted investments and other participating employers at 30 June 2015 (4,128) (646) (4,774)
Represented by:
Retirement benefit surpluses 105 73 178
Retirement benefit obligations (4,233) (719) (4,952)
(4,128) (646) (4,774)
The net decrease in liabilities due to changes in financial assumptions and
experience reflects, in the UK, a 0.1 percentage point increase in the real
discount rate to 0.5% and, in the US, a 0.4 percentage point increase in the
nominal discount rate to 4.5%.
Deficitallocation
Certain of the Group's equity accounted investments participate in the Group's
defined benefit schemes as well as Airbus SAS, the Group's share of which was
disposed of in 2006. As these schemes are multi-employer schemes, the Group
has allocated a share of the IAS 19 pension deficit to its equity accounted
investments and other participating employers using a consistent allocation
method intended to reflect a reasonable approximation of their share of the
deficit. The deficit allocation method for all schemes is based on the BAE
Systems Pension Scheme's (Main Scheme) schedule of contributions agreed with
the sponsoring employers and trustees as part of the triennial funding
valuations performed in 2014. Following completion of the triennial funding
valuations, discussions have commenced between the participating employers on
the allocation of the deficit. The outcome of those discussions will be
reflected in the allocation of the IAS 19 deficit should agreement in
principle be reached by the employers and the Trustees. In the event that an
agreement is reached, any change to the amounts allocated would be dependent
upon market conditions, in particular discount rates. The impact, if measured
at 30 June 2015, would have been an increase of approximately 4% of the
Group's share of the reported IAS 19 deficit. The Group's share of the IAS 19
pension deficit allocated to the equity accounted investments is included in
the balance sheet within equity accounted investments. In the event that an
employer who participates in the Group's pension schemes fails or cannot be
compelled to fulfil its obligations as a participating employer, the remaining
participating employers are obliged to collectively take on its obligations.
The Group considers the likelihood of this event arising as remote.
Principal actuarial assumptions
The assumptions used are estimates chosen from a range of possible actuarial
assumptions which, due to the long-term nature of the obligation covered, may
not necessarily occur in practice.
UK US
30 June 31 December 30 June 31 December
2015 2014 2015 2014
£m £m £m £m
Financial assumptions
Discount rate (%) 3.8 3.6 4.5 4.1
Inflation (%) 3.3 3.2 n/a n/a
Rate of increase in salaries (%) 3.3 3.2 n/a n/a
Rate of increase in pensions in payment (%) 1.9 - 3.7 1.8 - 3.6 n/a n/a
Rate of increase in deferred pensions (%) 2.4/3.3 2.3/3.2 n/a n/a
Demographic assumptions
Life expectancy of a male currently aged 65 (years) 87 - 89 87 - 89 87 87
Life expectancy of a female currently aged 65 (years) 89 - 90 89 - 90 89 89
Life expectancy of a male currently aged 45 (years) 89 - 91 89 - 91 87 87
Life expectancy of a female currently aged 45 (years) 91 - 92 91 - 92 89 89
Sensitivity analysis
The sensitivity information has been derived using scenario analysis from the
actuarial assumptions as at 30 June 2015 and keeping all other assumptions the
same.
Financial assumptions
Changes in the following financial assumptions would have the following effect
on the defined benefit pension obligation:
(Increase)/
decrease
£bn
Discount rate:
0.1 percentage point increase 0.5
0.1 percentage point decrease (0.5)
Inflation:
0.1 percentage point increase (0.5)
0.1 percentage point decrease 0.5
The sensitivity of the valuation of the liabilities to changes in the
inflation assumption presented above assumes that a 0.1 percentage point
change to expectations of future inflation results in a 0.1 percentage point
change to all inflation-related assumptions used to value the liabilities.
However, upper and lower limits exist on the majority of inflation-related
benefits such that a change in expectations of future inflation may not have
the same impact on the inflation-related benefits, and hence will result in a
smaller change to the valuation of the liabilities. Accordingly, extrapolation
of the above results beyond the specific sensitivity figures shown may not be
appropriate. To illustrate this, the (increase)/decrease in the defined
benefit pension obligation resulting from larger changes in the inflation
assumption would be as follows:
(Increase)/
decrease
£bn
Inflation:
0.5 percentage point increase (1.7)
0.5 percentage point decrease 1.6
1.0 percentage point increase (3.4)
1.0 percentage point decrease 3.1
Demographic assumptions
Changes in the life expectancy assumption, including the benefit of longevity
swap arrangements, would have the following effect on the total IAS 19
deficit:
(Increase)/
decrease
£bn
Life expectancy:
One-year increase (0.9)
One-year decrease 0.9
7. Equity dividends
Six months ended Six months ended
30 June 30 June
2015 2014
£m £m
Prior year final 12.3p dividend per ordinary share paid in the period (2014 12.1p) 389 383
The directors have declared an interim dividend of 8.4p per ordinary share
(2014 8.2p), totalling £266m (2014 £259m). The dividend will be paid on 30
November 2015 to shareholders registered on 23 October 2015. The ex-dividend
date is 22 October 2015.
Shareholders who do not at present participate in the Company's Dividend
Reinvestment Plan and wish to receive the final dividend in shares rather than
cash should complete a mandate form for the Dividend Reinvestment Plan and
return it to the registrars no later than 9 November 2015.
8. Fair value measurement
Fair value of financial instruments
Certain of the Group's financial instruments are held at fair value.
The fair value of a financial instrument is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the balance sheet date.
The fair values of financial instruments held at fair value have been
determined based on available market information at the balance sheet date,
and the valuation methodologies listed below:
- the fair values of forward foreign exchange contracts are calculated by
discounting the contracted forward values and translating at the appropriate
balance sheet rates;
- the fair values of both interest rate and cross-currency swaps are
calculated by discounting expected future principal and interest cash flows
and translating at the appropriate balance sheet rates; and
- the fair values of loans and overdrafts have been estimated by
discounting the future cash flows to net present values using appropriate
market-based interest rates prevailing at 30 June.
Due to the variability of the valuation factors, the fair values presented at
30 June may not be indicative of the amounts the Group would expect to realise
in the current market environment.
Fair value hierarchy
The fair value measurement hierarchy is as follows:
- Level 1 - Quoted prices (unadjusted) in active markets for identical
assets or liabilities;
- Level 2 - Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
- Level 3 - Inputs for the asset or liability that are not based on
observable market data (i.e. unobservable inputs).
Carrying amounts and fair values of certain financial instruments
Carrying amounts
30 June 31 December 2014
2015 £m
£m
Financial instrumentsmeasured at fair value:
Non-current
Available-for-sale financial assets 7 7
Other receivables1 241 238
Other financial assets 51 38
Other financial liabilities (103) (79)
Loans (324) (325)
Other payables1 (261) (262)
Current
Other financial assets 52 46
Other financial liabilities (167) (107)
Financial instruments not measured at fair value:
Non-current
Loans (2,526) (2,543)
Current
Cash and cash equivalents 1,383 2,308
Loans and overdrafts (485) (482)
1. Represents US deferred compensation plan assets and liabilities.
Financial assets and liabilities in the Group's Consolidated Balance Sheet are
either held at fair value or their carrying value approximates to fair value,
with the exception of loans, most of which are held at amortised cost.
The fair value of total loans and overdrafts estimated using market prices at
30 June 2015 is £3,661m (31 December 2014 £3,719m).
All of the financial assets and liabilities measured at fair value are
classified as level 2 using the fair value hierarchy. There were no transfers
between levels during the period.
9. Related party transactions
Transactions with related parties are shown on page 154 of the Annual Report
2014. The more significant transactions in the period are disclosed below:
Six months ended Six months ended
30 June 30 June
2015 2014
£m £m
Sales to equity accounted investments 928 435
Purchases from equity accounted investments 297 57
30 June 31 December
2015 2014
£m £m
Amounts owed by equity accounted investments 94 92
Amounts owed to equity accounted investments 578 494
This information is provided by RNS
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