REG - BAE SYSTEMS PLC - Trading Statement

BAE SystemsAnnouncement

15/11/2022 07:00

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RNS Number : 3728G  BAE SYSTEMS PLC  15 November 2022

 
 
                   15 November 2022

 

BAE Systems plc - Market Update

 

Trading Update Key Points:

·    Strong order intake continuing - further £10bn secured in the second
half to date

·    Good operational performance in challenging conditions

·    Increased investment in R&D, people and facilities to support
future growth

·    Strong balance sheet supports capital allocation flexibility -
>30% of 3 year £1.5bn share buyback completed

·    Underlying group guidance for FY22 confirmed - represented upwards
for both fx impact of the stronger dollar together with the progress made on
the share buyback programme

·    Large and predominantly long cycle orderbook, diverse portfolio and
focus on programme performance gives line of sight for future growth and
margin expansion

 

Charles Woodburn, BAE Systems Chief Executive, said:

"Our operational performance year to date underlines our confidence in the
full year group guidance for top line growth and margin expansion as well as
our cash flow targets. Order flow remains strong and our focus on programme
execution, cash generation and efficiencies is helping us to navigate the
challenging operating environment.

 

"Looking forward, our large order backlog, diverse portfolio position and
focus on programme performance position us well for another year of top line
growth and margin expansion in 2023. We see sales growth coming from all
sectors and opportunities to further enhance the medium-term outlook as our
customers address the elevated threat environment."

 

Guidance

The full year Group 2022 guidance across all metrics is unchanged on a
constant currency basis from the Preliminary Announcement on 24 February 2022.

The dollar rate has significantly strengthened throughout the year from the
$1.38:£1 average rate assumed in February providing a tailwind to reported
earnings. Illustrative group guidance is represented below based on an average
$1.23: £1 for the year and progress to date against the share buyback
programme.

                            Guidance at $1.38: £1    Illustrative at $1.23: £1

 Sales                      +2-4% (2021: £21,310m)   +7-9%
 Underlying EBIT            +4-6% (2021: £2,205m)    +10-12%
 Underlying EPS             +4-6% (2021: £47.8p)     +11-13%
 2022 Free Cash Flow (FCF)  >£1bn                    >£1bn
 Cumulative FCF 2022-2024   >£4bn                    >£4bn

 

Order flow

We are tracking towards a very strong year of order intake. With £18bn
secured in the first half we have secured a further £10bn since the half
year.

Notable new and strategically important awards received since the Interim
results include:

 Sector                    Contract
 Electronic Systems        LRIP Lot 2 award for EPAWSS for US F-15E and F-15EX aircraft
 Electronic Systems        Design & manufacture next-generation infrared seekers for Terminal High
                           Altitude Area Defense (THAAD) interceptor missiles
 Platforms & Services      Beowulf won US Army cold weather all-terrain combat vehicle (CATV)
                           competition, receiving a contract for production, spare parts and support -
                           $278m
 Platforms & Services      US Ship Repair USS Ross maintenance and modernization - $108m
 Platforms & Services      US Army 5-year Bradley and Multiple Launch Rocket System carriers support
                           services - $383m
 Cyber and Intelligence    US Navy Surface Combat Systems Center Support - $143m
 Maritime                  Type 26 - Batch 2 ships 4-8 - £4.2bn

 

Operational update

Overall programme execution has remained good in all sectors year to date with
a particular milestone since the half year being the delivery of the first
four Typhoons to Qatar.

While we continue to work through ongoing supply chain challenges especially
in those business areas reliant on microelectronics, the recruitment picture
has started to improve since the half year, particularly in Electronic
Systems. Consistent with our guidance, we continue to drive top line growth
and margin expansion despite the various headwinds. We do not see a material
impact from higher energy prices. We are well hedged in the UK and our other
major markets are relatively energy independent.

Defence spending outlook

A key underpin for our growth aspirations is the benefit we derive from our
geographic diversity. Many of the countries in which we operate have either
announced increases or are making plans to increase spending to address the
elevated threat environment. Whilst global economic and fiscal pressures weigh
on governments, the commitment to defence in our major markets remains robust.
Most major defence programmes tend to be long cycle in the build and
subsequent support phases. As a result, contracts secured now will be executed
and traded for many years to come providing us with long-term growth
visibility.

ESG

Global events have more than ever demonstrated the need for strong defence and
security in the face of aggression by nation states. It is important to
recognise the defence industry's contribution to security and prosperity and
that BAE Systems is a responsible, government-backed, strictly regulated and
ethically-led defence and security company.

On 18 October, we held an investor engagement session featuring:

·    An update on progress against our Environment, Social and Governance
targets

·    A discussion of focus areas going forward

·    An update on our electrification work streams

·    A series of case studies demonstrating how our sustainability
objectives run through the business and go hand in hand with our drive on
operational performance.

For further background, the recording and presentations can be accessed on
investors.baesystems.com/results-centre
(https://investors.baesystems.com/results-centre) .

Investment in the business

Investment in the business is fundamental to our aspirations. This year we
are:

·    On track to increase self-funded R&D

·    Investing in new facilities - the most recent opening being in Cedar
Rapids, Iowa, to support our Navigation and Sensor Systems business, a leader
in mission critical GPS technology

·    Committed to build a new ship build hall at our Govan facility in
Glasgow

·    Significantly increasing our UK apprentice intake in Air and Maritime

 

Balance sheet and capital allocation

The Group's balance sheet remains strong with no sizeable near-term maturities
and a largely fixed debt structure. This in combination with the Group's
ongoing strong financial performance enables us to continue to invest in
organic opportunities, support the long-term dividend policy, whilst also
providing flexibility to consider value enhancing acquisitions and accelerated
returns to shareholders. Against the £1.5bn three-year share buyback
programme we announced at the half-year results we have completed £484m to
date.

 

Pension

Our balanced asset approach and conservative asset allocation has held up well
in the recent market turmoil. We have appropriate liquidity across our funds,
and the surplus that we reported at the half year remains intact.

 

M&A

On 28 October, we completed the sale of BAE Systems' financial crime detection
business from our Digital Intelligence business.

 

Board

As previously announced, both Cressida Hogg, as Chair Designate, and Lord Mark
Sedwill joined the Board on 1 November as Non-Executive Directors.

 

Interim dividend

The 2022 interim dividend of 10.4 pence per share will be paid on 30 November
2022.

 

 For further information please contact:

 Investors                                                           Media
 Martin Cooper,                                                      Kristina Anderson,

 Investor Relations Director                                         Director, Media Relations

 Telephone: +44 (0)1252 383455                                       Telephone: +44 (0) 7540 628673

 Email: investors@baesystems.com (mailto:investors@baesystems.com)   Email: Kristina.anderson@baesystems.com
                                                                     (mailto:Kristina.anderson@baesystems.com)

 

Cautionary statement: All statements other than statements of historical fact
included in this document, including, without limitation, those regarding the
financial condition, results, operations and businesses of BAE Systems and its
strategy, plans and objectives and the markets and economies in which it
operates, are forward-looking statements. Such forward-looking statements
which reflect management's assumptions made on the basis of information
available to it at this time, involve known and unknown risks, uncertainties
and other important factors which could cause the actual results, performance
or achievements of BAE Systems or the markets and economies in which BAE
Systems operates to be materially different from future results, performance
or achievements expressed or implied by such forward-looking statements. BAE
Systems plc and its directors accept no liability to third parties in respect
of this report save as would arise under English law. Accordingly, any
liability to a person who has demonstrated reliance on any untrue or
misleading statement or omission shall be determined in accordance with
Schedule 10A of the Financial Services and Markets Act 2000. It should be
noted that Schedule 10A contains limits on the liability of the directors of
BAE Systems plc so that their liability is solely to BAE Systems plc.

For the avoidance of doubt, the contents of any websites referred to in this
announcement are not incorporated into and do not form part of this
announcement.

 

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