REG - BAE SYSTEMS PLC - Half Yearly Report <Origin Href="QuoteRef">BAES.L</Origin> <Origin Href="QuoteRef">RR.L</Origin> - Part 2
06/09/2014 22:42
- Part 2: For the preceding part double click ID:nRSe8045Na
franchise programme
that would help to sustain the Group's combat vehicle manufacturing base in
the US. In addition, the business continues to offer export products to
international markets and invest in new technology, such as directed energy
weapons and hybrid electric drives for combat vehicles.
Whilst potential cancellations and delays in new programmes could affect the
business, Support Solutions may be able to offset the impact through
additional opportunities to sustain and modernise existing platforms.
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 inflow/(outflow) from operating activities after capital
expenditure (net) and financial investment, and dividends from equity
accounted investments.
4 Order backlog comprises funded and unfunded unexecuted customer orders.
REPORTING SEGMENTS: PLATFORMS & SERVICES (UK)
Platforms & Services (UK), with 29,400 employees1, comprises the Group's
UK-based air, maritime, combat vehicle, munitions and certain shared services
activities.
Six months ended Six months ended30 June 20134 Year ended
30 June 2014 31 December 2013
Sales1 £2,844m £3,231m £6,890m
Underlying EBITA2 £393m £386m £879m
Return on sales 13.8% 11.9% 12.8%
Cash (outflow)/inflow3 £(201)m £(411)m £59m
Funded order intake1 £1,612m £2,385m £5,979m
Order backlog1 £20.4bn £20.5bn £20.3bn
Financial performance
Sales1 of £2.8bn reduced by 12% compared to 2013 or 15% after adjusting for
the transfer in from Land & Armaments of the UK Munitions business (sales in
the six months ended 30 June 2013 of £125m). Typhoon aircraft deliveries have
a significant second half bias. Under the Saudi Arabian Salam contract, there
were four aircraft delivered in the first half, with eight scheduled for the
second half. On the European programme, there were eight deliveries in the
first half, with 22 scheduled for the second half as it transitions to
deliveries of Tranche 3 standard aircraft.
The return on sales of 13.8% seen in the first half of 2014 benefited from
strong programme execution and accelerated risk reduction on the European
Typhoon production contract as Tranche 2 aircraft deliveries move towards
completion.
As expected, the £0.2bn cash outflow3 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.
Order backlog1 reduced to £20.4bn from £21.6bn after adjusting for the
transfer in of the UK Munitions business (31 December 2013 £1.3bn) primarily
on the trading of Typhoon aircraft, Indian Hawks and aircraft carriers.
Operational performance
Military Air & Information
In the period, deliveries of eight Typhoon Tranche 2 aircraft to the four
partner nations were made. Cumulative aircraft deliveries are now 211 of the
contracted 236. In addition to a planned ten Tranche 2 aircraft deliveries, 12
Tranche 3 aircraft are also planned to be delivered in the second half of
2014.
In July, BAE Systems was awarded a £72m, three-year contract by the UK
Ministry of Defence to de-risk E-Scan radar development for the Royal Air
Force's Typhoon aircraft fleet ahead of the award of a full-scale development
contract.
Progress continues on the Oman Typhoon and Hawk contract with the first
aircraft deliveries scheduled for 2017.
The business supports its UK and European customers' Typhoon and Tornado
aircraft and their operational commitments through availability-based service
contracts. A £125m contract extension was received in the period to provide
support to the Royal Air Force's Tornado GR4 fleet until aircraft retirement
in 2019.
On the F-35 Lightning II programme, production under the sixth and seventh
Low-Rate Initial Production (LRIP) contracts remains on schedule, with a total
of 21 aft fuselage assemblies delivered during the period. Price negotiations
with Lockheed Martin for the eighth LRIP contract have been completed, with
full order intake anticipated to follow later in 2014. Bidding activity in
respect of the ninth LRIP contract is expected to commence during the third
quarter.
Support continues to be provided to users of Hawk trainer aircraft around the
world. The Indian Navy has received a further three Hawk aircraft from
Hindustan Aeronautics Limited, built under the Batch 2 licence for 57
aircraft. Commercial discussions are ongoing for an additional 20 Hawk
aircraft for the Indian Air Force's aerobatic display team.
Working jointly with Dassault Aviation, progress is being made in maturing and
demonstrating critical technology and operational aspects for an Unmanned
Combat Air System. In January, it was announced that there would be further
joint UK/French Future Combat Air System technology development under a
two-year feasibility study worth £120m for the participating companies.
Taranis, the stealthy unmanned combat air vehicle demonstrator designed and
built by BAE Systems with UK industry partners and the Ministry of Defence,
has successfully completed a second phase of flight testing. During these
latest tests, Taranis flew in a fully stealthy configuration, making it
virtually invisible to radar.
Maritime
In November 2013, BAE Systems announced that it proposed to consolidate its UK
shipbuilding operations in Glasgow and that shipbuilding operations at
Portsmouth would cease in the second half of 2014, with a potential employee
reduction of up to 1,775. Constructive consultation with the trade unions and
other employee representative bodies is in place. The restructuring is
progressing to plan, continuing through to 2016.
BAE Systems has continued to negotiate contracts with the UK Ministry of
Defence to enact the restructuring of its naval ships business. In the first
half of the year, contracts were signed for the revised target cost
arrangements for the delivery of the Queen Elizabeth class aircraft carriers,
initial long lead funding for the procurement of the three new Offshore Patrol
Vessels and the recovery of associated rationalisation costs.
On the aircraft carrier programme, HMS Queen Elizabeth was officially named by
Her Majesty The Queen at Rosyth in July. The second ship block build programme
is some 70% complete. Under the new target cost arrangements, the industrial
participants' fee includes a 50:50 risk share arrangement providing greater
cost performance incentives.
The assessment phase contract for the Type 26 is progressing and there are now
over 650 employees working on the programme.
On the Khareef class corvettes for Oman, the third ship achieved interim
acceptance on schedule in May. Final acceptance of the first two ships is
planned for later in 2014, with the third ship planned for 2015.
Negotiations are at an advanced stage on the five-year Maritime Support
Delivery Framework contract for the delivery of services at Portsmouth Naval
Base.
The Type 45 support contract met all ship deployment dates in the period. In
June, the UK Ministry of Defence awarded BAE Systems a £70m contract to manage
the support, maintenance and upgrade of the Type 45 destroyers at Portsmouth
Naval Base and on all their operations in the UK and globally from July 2014
to November 2016.
The Advanced Radar Target Indication Situational Awareness Navigation
(ARTISAN) 3D radar programme is on schedule with two Type 23 frigates fitted
and deployed with the system.
The four-year Spearfish torpedo upgrade assessment phase has progressed to the
stage where discussions are now underway to extend the contract into
demonstration and full manufacture.
HMS Astute and HMS Ambush, the first and second of class attack submarines for
the Royal Navy, achieved operational handover in 2013. Artful, the third of
class, was launched in May.
Progress continues on the design and development phase of the Successor
submarine programme, the potential replacement to the Vanguard class fleet,
with more than 1,300 people now employed on the programme.
Combat Vehicles (UK)
In the period, the final 17 of 60 Terrier combat engineering vehicles were
delivered to the initial build standard. All 60 vehicles will now pass through
a retrofit programme to meet final acceptance build standard during the second
half of 2014. The Newcastle facility will close by the end of the year
following the completion of vehicle deliveries.
Orders totalling £34m for ongoing support activity were received in the
period.
Munitions
The business submitted the last five-year pricing proposal of its 15-year
Munitions Acquisition Supply Solution contract with the UK Ministry of Defence
during the period.
Transformation of the munitions facilities under the £200m capital programme
is due to complete in the second half of the year.
Looking forward
Platforms & Services (UK) has a strong order backlog of long-term committed
programmes and an enduring support business.
In Military Air & Information, sales are underpinned by 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 export sales.
In Maritime, sales are underpinned by the design and subsequent build of the
Successor submarine and Type 26 frigate, and the build of the Queen Elizabeth
class carrier and Astute class submarine. The through-life support of the
surface ship platforms, including the Type 45 destroyer, together with their
associated command and combat systems, provides a sustainable business in
technical services and mid-life upgrades.
In Combat Vehicles (UK), sales beyond the Terrier programme are expected to be
derived from future support and upgrade of legacy platforms.
The Munitions business is underpinned by the 15-year Munitions Acquisition
Supply Solution partnering agreement with the UK Ministry of Defence, together
with a number of international contracts and potential opportunities.
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) and financial investment, and dividends from equity
accounted investments.
4 Re-presented on classification of the Regional Aircraft line of business as
a continuing operation.
REPORTING SEGMENTS: PLATFORMS & SERVICES (INTERNATIONAL)
Platforms & Services (International), with 14,100 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 2014 30 June 2013 31 December 2013
Sales1 £1,576m £1,654m £4,063m
Underlying EBITA2 £157m £165m £429m
Return on sales 10.0% 10.0% 10.6%
Cash inflow/(outflow)3 £541m £(221)m £(189)m
Funded order intake1 £761m £4,178m £7,221m
Order backlog1 £11.4bn £11.9bn £12.3bn
Financial performance
Excluding the exchange translational impact of sterling against the Euro and
Australian dollar, sales1 for the first six months of £1.6bn are unchanged
from 2013.
Underlying EBITA2 was £157m, giving a consistent return on sales of 10.0%.
There was an operating cash inflow3 of £541m which includes a net £349m from
the sale and leaseback, and initial rentals, of the two Saudi residential
compounds.
Whilst order backlog1 has reduced from last year end's high following the
awards in 2013 of the five-year support contracts and further weapons
procurement, orders totalling £1.3bn are being finalised with the Saudi
customer.
Operational performance
Saudi Arabia
Through the build-up of the Typhoon aircraft fleet and the ongoing development
of the in-country industrial base, the Group remains committed to developing a
greater indigenous capability in Saudi Arabia.
On the Salam Typhoon programme, UK final assembly of 72 Typhoon aircraft
continues. In February, discussions on price escalation reached agreement with
the Saudi Arabian government. At 30 June 2014, 38 aircraft had been delivered
to the customer. Work continues to expand the capability on the aircraft,
including finalising additional orders of £1.3bn.
Under the £1.8bn, five-year Typhoon support contract received in 2013, flying
hours and key performance indicators are meeting contracted levels. The
mobilisation of the scheduled maintenance and upgrade programme under a
contract received in 2013 is complete and the first of 30 aircraft has entered
the programme.
Under the Saudi British Defence Co-operation Programme, the business supports
the operational capability of both the Royal Saudi Air Force (RSAF) and Royal
Saudi Naval Forces (RSNF). Under a £1.6bn contract awarded in 2012 to upgrade
the RSAF's training aircraft, the first Pilatus PC-21 aircraft were delivered
in June and Hawk production is on schedule. Support continues to be provided
to the RSAF through five-year contracts awarded in 2012 worth £3.4bn.
The orders received in 2013 for the upgrade of Tornado aircraft and
procurement of weapons have been mobilised, and are proceeding to plan.
Under the RSNF minehunter mid-life update programme, the second ship is
scheduled for acceptance back into the RSNF fleet in early 2015.
Australia
The first Landing Helicopter Dock (LHD), HMAS Canberra, has taken part in
successful harbour and first sea trials, with delivery of the ship scheduled
for the second half of 2014.
The hull for the second LHD, HMAS Adelaide, arrived at Williamstown shipyard
from Spanish subcontractor, Navantia, in February. The superstructure and hull
have been consolidated and outfitting activity has commenced. Delivery of the
ship is scheduled for the second half of 2015.
On the Air Warfare Destroyer programme, construction work continues on the
additional blocks contracted, with two now complete. Further block awards for
the final ship are anticipated in the second half of the year.
Work is underway at the Henderson shipyard to upgrade the third ANZAC class
frigate, HMAS ANZAC, contracted as part of the Anti-Ship Missile Defence
follow-on contract. The second ship, HMAS Arunta, was delivered back to the
customer in June ahead of sea trials and HMAS ANZAC is scheduled to be
delivered in the second half of 2014.
Negotiations are ongoing with the Commonwealth on the de-scoping of the JP
2008 Phase 3F programme which provides strategic and tactical satellite
communications capabilities to support Australian Defence Force operations.
Oman
Following the signature of the contract to supply 12 Typhoon and eight Hawk
aircraft in 2012, the first aircraft have entered production with deliveries
to the customer commencing in 2017.
MBDA
In January, the UK and French governments signed an agreement worth E600m
(£480m) for the joint development and production of the MBDA Future Anti-Ship
Guided Weapon - Anti-Navire Léger missile for their armed forces.
Following successful completion of the Meteor development programme,
cumulative deliveries of production-standard missiles totalled 62 out of
almost 1,100 for the six partner nation customers at 30 June 2014.
In July, MBDA received a £250m contract to supply the Advanced Short Range
Air-to-Air Missile (ASRAAM) for India's Jaguar aircraft fleet.
Looking forward
The Group expects to sustain its prime contract position and long-term
presence in the Kingdom of Saudi Arabia through delivering current programmes
and developing new business in support of the Saudi military forces. In June,
BAE Systems announced a reorganisation of its portfolio of interests in a
number of industrial companies in Saudi Arabia and an enhancement of its
existing relationship with Riyadh Wings Aviation Academy LLC. The
reorganisation is expected to enhance the growth prospects of this portfolio
of businesses and reinforce an ongoing commitment to support the national
agenda of developing an indigenous defence industry, supporting skills and
technology development, and increasing local employment.
As part of the Australian federal budget announcements in May, the defence
budget was increased by 8% for the 2014/15 fiscal year. The Australian
government's election commitment is to increase defence expenditure to 2% of
Gross Domestic Product within a decade. The Group is continuing to explore and
secure opportunities in adjacent markets, particularly in the oil and gas
industry in Western Australia.
In Oman, the business continues to focus on strengthening its close
relationship with the Royal Oman Air Force, Navy and Army to address their
future requirements.
MBDA continues to build on the effective partnerships it has established with
its domestic customers and is pursuing actively a significant number of air
defence export opportunities. The business continues to support the various
aircraft programme campaigns around the world through responding to associated
weapon requirements.
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 inflow/(outflow) from operating activities after capital
expenditure (net) and 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 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
30 July 2014
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
Paul Anderson Non-executive director
Harriet Green Non-executive director
Chris Grigg Non-executive director
Paula Rosput Reynolds Non-executive director
Nick Rose Non-executive director
Carl Symon 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 2014 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 2014 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
30 July 2014
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months ended Six months ended
30 June 2014 30 June 20131
Notes £m £m £m £m
Continuing operations
Combined sales of Group and share of equity accounted investments 2 7,611 8,487
Less: share of sales of equity accounted investments 2 (489) (496)
Revenue 2 7,122 7,991
Operating costs (6,493) (7,338)
Other income 46 55
Group operating profit 675 708
Share of results of equity accounted investments 14 44
Underlying EBITA2 802 867
Non-recurring items3 - 4
EBITA 802 871
Amortisation (88) (96)
Impairment - (4)
Financial expense of equity accounted investments 3 (21) (2)
Taxation expense of equity accounted investments (4) (17)
Operating profit 2 689 752
Financial income 165 278
Financial expense (313) (499)
Finance costs 3 (148) (221)
Profit before taxation 541 531
Taxation expense (107) (116)
Profit for the period 434 415
Attributable to:
Equity shareholders 429 411
Non-controlling interests 5 4
434 415
Earnings per share 4
Basic earnings per share 13.5p 12.7p
Diluted earnings per share 13.5p 12.6p
1 Re-presented on classification of the Regional Aircraft line of business as
a continuing operation.
2 Earnings before amortisation and impairment of intangible assets, finance
costs and taxation expense (EBITA) excluding non-recurring items.
3 Non-recurring items represents profit on disposal of businesses £nil (2013
£4m).
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Six months ended
30 June 2014 30 June 2013
Other Retained earnings Total Other Retainedearnings1£m Total1£m
reserves £m £m reserves
£m £m
Profit for the period - 434 434 - 415 415
Other comprehensive income
Items that will not be reclassified to the income statement:
Remeasurements on defined benefit pension schemes:
Subsidiaries - (308) (308) - 430 430
Equity accounted investments - (19) (19) - (16) (16)
Tax on items that will not be reclassified to the income statement - 69 69 - (167) (167)
Items that may be reclassified to the income statement:
Currency translation on foreign currency net investments:
Subsidiaries (161) - (161) 307 - 307
Equity accounted investments (22) - (22) 11 - 11
Reclassification of cumulative currency translation reserve on disposal - - - (8) - (8)
Amounts (charged)/credited to hedging reserve (45) - (45) 69 - 69
Tax on items that may be reclassified to the income statement 10 - 10 (16) - (16)
Total other comprehensive income for the period (net of tax) (218) (258) (476) 363 247 610
Total comprehensive income for the period (218) 176 (42) 363 662 1,025
Attributable to:
Equity shareholders (217) 171 (46) 364 658 1,022
Non-controlling interests (1) 5 4 (1) 4 3
(218) 176 (42) 363 662 1,025
1 Restated for the updated fair value of longevity swaps following
consideration of the impact of the adoption of IAS 19 (revised 2011), Employee
Benefits, and IFRS 13, Fair Value Measurement.
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 2013. The comparative
figures for the year ended 31 December 2013 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.
Except as described below, the accounting policies adopted in the preparation
of these condensed consolidated half-yearly financial statements to 30 June
2014 are consistent with the accounting policies applied by the Group in its
consolidated financial statements as at, and for the year ended, 31 December
2013 as required by the Disclosure and Transparency Rules of the UK's
Financial Conduct Authority.
Changes in accounting policies
A number of new EU-endorsed standards and amendments to existing standards,
which are listed below, are effective for periods beginning on or after 1
January 2014 and have been applied in preparing these consolidated financial
statements. With the exception of new disclosure requirements, none of these
have an impact on the consolidated financial statements of the Group.
New standards and amendments to existing standards Effective for periods
beginning on or after
IFRS 10, Consolidated Financial Statements 1 January 2014
IFRS 11, Joint Arrangements 1 January 2014
IFRS 12, Disclosure of Interests in Other Entities 1 January 2014
IAS 27, Separate Financial Statements (revised 2011) 1 January 2014
IAS 28, Investments in Associates and Joint Ventures (revised 2011) 1 January 2014
There are no EU-endorsed IFRSs or IFRIC interpretations that are not yet
effective that are expected to have a material impact on the Group.
NOTES TO THE CONDENSED HALF-YEARLY FINANCIAL STATEMENTS -
CONDENSED CONSOLIDATED INCOME STATEMENT
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 2014 30 June20131£m 30 June 2014 30 June 2013 30 June 2014 30 June 2013 30 June 2014 30 June20131£m
£m £m £m £m £m £m
Electronic Systems 1,108 1,194 (36) (30) 36 30 1,108 1,194
Cyber & Intelligence 529 657 - - - - 529 657
Platforms & Services (US) 1,662 2,085 (36) (35) - - 1,626 2,050
Platforms & Services (UK) 2,844 3,231 (428) (517) 382 484 2,798 3,198
Platforms & Services (International) 1,576 1,654 (297) (297) - - 1,279 1,357
HQ 127 145 (127) (145) - - - -
7,846 8,966 (924) (1,024) 418 514 7,340 8,456
Intra-group sales/revenue (235) (479) - - 17 14 (218) (465)
7,611 8,487 (924) (1,024) 435 528 7,122 7,991
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 Six months ended Six Six months ended Six Six months ended Six
30 June 2014 months ended 30 June 2014 months ended 30 June 2014 months ended 30 June 2014 months ended 30 June 2014 months ended
£m 30 June20131£m £m 30 June 2013 £m 30 June 2013 £m 30 June 2013 £m 30 June20131£m
£m £m £m
Electronic Systems 143 156 - - (7) (7) - (4) 136 145
Cyber & Intelligence 47 53 - - (28) (29) - - 19 24
Platforms & Services (US) 105 182 - 5 (9) (12) - - 96 175
Platforms & Services (UK) 393 386 - - (42) (45) - - 351 341
Platforms & Services (International) 157 165 - (1) (2) (3) - - 155 161
HQ4 (43) (75) - - - - - - (43) (75)
802 867 - 4 (88) (96) - (4) 714 771
Financial expense of equity accounted investments (21) (2)
Taxation expense of equity accounted investments (4) (17)
Operating profit 689 752
Finance costs (148) (221)
Profit before taxation 541 531
Taxation expense (107) (116)
Profit for the period 434 415
1 Re-presented on classification of the Regional Aircraft line of business as
a continuing operation.
2 Earnings before amortisation and impairment of intangible assets, finance
costs and taxation expense (EBITA) excluding non-recurring items.
3 Non-recurring items represents profit on disposal of businesses £nil (2013
£4m).
4 In 2014, the HQ reporting segment includes a £30m benefit (2013 £nil) from
re-assessment of a long-term liability and a £17m charge (2013 £32m) in
respect of a US contract pricing dispute.
3. Finance costs
Six months ended Six months ended 30 June 2013
30 June £m
2014
£m
Finance costs:
Group (148) (221)
Share of equity accounted investments (21) (2)
(169) (223)
Analysed as:
Underlying interest (expense)/income:
Group (88) (98)
Share of equity accounted investments (1) 3
(89) (95)
Other:
Group:
Net interest expense on retirement benefit obligations (76) (98)
Fair value and foreign exchange adjustments on financial instruments and investments 16 (25)
Share of equity accounted investments (20) (5)
(169) (223)
4. Earnings per share
Six months ended Six months ended
30 June 2014 30 June 2013
£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 429 13.5 13.5 411 12.7 12.6
(Deduct)/add back:
Profit on disposal of businesses - (4)
Net interest expense on retirement benefit obligations, post tax 64 78
Fair value and foreign exchange adjustments on financial instruments and investments, post tax - 19
Amortisation and impairment of intangible assets, post tax 70 75
Underlying earnings, post tax 563 17.7 17.7 579 17.9 17.8
Millions Millions Millions Millions
Weighted average number of shares used in calculating basic earnings per share 3,175 3,175 3,243 3,243
Incremental shares in respect of employee share schemes 9 10
Weighted average number of shares used in calculating diluted earnings per share 3,184 3,253
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.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Notes Six months ended Six months ended
30 June 2014 30 June
£m 2013
£m
Profit for the period 434 415
Taxation expense 107 116
Share of results of equity accounted investments (14) (44)
Finance costs 148 221
Depreciation, amortisation and impairment 226 255
(Profit)/loss on disposal of property, plant and equipment (4) 5
Profit on disposal of investment property (3) (6)
Profit on disposal of businesses - (4)
Cost of equity-settled employee share schemes 22 26
Movements in provisions (124) (34)
Decrease in liabilities for retirement benefit obligations (143) (147)
Increase in working capital:
Inventories (28) (59)
Trade and other receivables (125) (443)
Trade and other payables (526) (1,029)
Cash outflow from operating activities1 (30) (728)
Interest paid (81) (88)
Taxation paid (65) (94)
Net cash outflow from operating activities (176) (910)
Dividends received from equity accounted investments 13 10
Interest received 5 7
Purchases of property, plant and equipment, and investment property (100) (105)
Purchases of intangible assets (28) (11)
Proceeds from sale of property, plant and equipment, and investment property 5 433 20
Purchase of subsidiary undertakings (net of cash acquired) - (1)
Equity accounted investment funding (1) (1)
Proceeds from sale of subsidiary undertakings (net of cash disposed) - 7
Net cash inflow/(outflow) from investing activities 322 (74)
Net purchase of own shares (237) (90)
Equity dividends paid 7 (383) (380)
Dividends paid to non-controlling interests (2) (12)
Cash (outflow)/inflow from matured derivative financial instruments (57) 33
Cash (outflow)/inflow from cash collateral (7) 2
Cash outflow from repayment of loans (298) -
Net cash outflow from financing activities (984) (447)
Net decrease in cash and cash equivalents (838) (1,431)
Cash and cash equivalents at 1 January 2,222 3,334
Effect of foreign exchange rate changes on cash and cash equivalents (10) 7
Cash and cash equivalents at end of period 1,374 1,910
Comprising:
Cash and cash equivalents 1,374 1,919
Overdrafts - (9)
Cash and cash equivalents at end of period 1,374 1,910
1 See reconciliation to operating business cash flow above.
CONDENSED CONSOLIDATED BALANCE SHEET
Notes 30 June 31 December 2013
2014 £m
£m
Non-current assets
Intangible assets 9,527 9,735
Property, plant and equipment 5 1,593 1,936
Investment property 136 135
Equity accounted investments 248 283
Other investments 3 3
Other receivables 517 477
Other financial assets
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