REG - BAE SYSTEMS PLC - Preliminary Results Announcement 2025
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RNS Number : 4007T BAE SYSTEMS PLC 18 February 2026
Preliminary Results Announcement 2025
BAE Systems plc
Charles Woodburn, Chief Executive, said: "Our results highlight another year
of strong operational and financial performance, thanks to the outstanding
dedication of our employees. In a new era of defence spending, driven by
escalating security challenges, we're well positioned to provide both the
advanced conventional systems and disruptive technologies needed to protect
the nations we serve now and into the future. With a record order backlog and
continuing investment in our business to enhance agility, efficiency and
capacity, we're confident in our ability to keep delivering growth over the
coming years."
Financial highlights
Financial performance measures as defined by Group(1) Year ended 31 December 2025 Year ended 31 December 2024 Variance(2)
Sales £30,662m £28,335m +10 %
Underlying earnings before interest and tax (EBIT) £3,322m £3,015m +12 %
Underlying earnings per share (EPS) 75.2p 68.5p +12 %
Free cash flow £2,158m £2,505m £(347)m
Order intake £36.8bn £33.7bn £3.1bn
Order backlog £83.6bn £77.8bn £5.8bn
Financial performance measures as derived from IFRS Year ended 31 December 2025 Year ended 31 December 2024 Variance(2)
Revenue £28,336m £26,312m +8 %
Operating profit £2,925m £2,685m +9 %
EPS - basic 68.8p 64.9p +6 %
Net cash flow from operating activities £3,432m £3,925m £(493)m
Order book £63.1bn £60.4bn £2.7bn
Dividend per share 36.3p 33.0p +10 %
As defined by Group
- Sales increased 10%(2) to a record £30.7bn, with growth in
all of our sectors. Organic growth was 9%(2).
- Underlying EBIT increased by 12%(2) with a 20bps increase in
return on sales from 10.6% to 10.8%.
- Underlying EPS increased by 12%(2).
- Free cash flow was strong at £2,158m. Significant customer
advances were received late in the year, capital expenditure remained close to
record levels at c.£1bn and research and development (R&D) spend
increased.
- Our order backlog grew by £5.8bn to a record £83.6bn.
Order intake was strong at £36.8bn, with all sectors performing well,
reflecting the continued relevance of our diverse geographic footprint and
multi-domain capabilities.
As derived from IFRS
- The growth in revenue of 8% reflects the same strong
operational performance in sales across the portfolio, but excludes the impact
of our equity accounted investments.
- Operating profit was up 9% as the growth in underlying EBIT
was offset by additional costs from the amortisation of acquired intangibles,
reflecting the significant acquisitions in the prior year which included Ball
Aerospace.
- Basic EPS was up 6%.
- Net cash flow from operating activities reflected movements
on customer advances and working capital commitments.
1. We monitor the underlying financial performance of the
Group using alternative performance measures (APMs). These measures are not
defined in International Financial Reporting Standards (IFRS) and therefore
are considered to be non-GAAP (Generally Accepted Accounting Principles)
measures. The relevant IFRS measures are presented where appropriate. The
purposes and definitions of non-GAAP measures are provided in the Alternative
performance measures section on page 40.
2. Growth rates for sales, underlying EBIT and underlying EPS
are on a constant currency basis (i.e. calculated by translating the results
from entities in functional currencies other than pounds sterling for the year
ended 31 December 2024 to pounds sterling at the average exchange rate of
such currencies for the year ended 31 December 2025). The comparatives have
not been restated. All other growth rates and year-on-year movements are on a
reported currency basis.
Delivering for our customers
Our continued focus on operational performance and contracting discipline
enables our consistent delivery of critical capabilities and technologies for
our customers worldwide. During the year, we secured £36.8bn of orders and
made good progress executing on our long-term major programmes. Highlights
included:
- The UK Government announced an agreement with Türkiye to
acquire 20 Typhoon aircraft, along with an associated weapons package. The
deal is anticipated to be worth £4.6bn to BAE Systems and will sustain
Typhoon production in the years to come, helping to sustain 20,000 jobs across
the UK.
- We delivered the final two Typhoon aircraft to Qatar during
the year, bringing the Qatari Emiri Air Force fleet total to 24.
- Launching Edgewing, a joint venture with our international
industry partners in Italy and Japan on the Global Combat Air Programme
(GCAP). Edgewing will be accountable for the design and development of the
next-generation combat aircraft under the programme.
- Norway selected our Type 26 frigate for its future warship
procurement programme. The £10bn Government-to-Government agreement paves the
way for the UK's largest ever warship export deal by value.
- We played a critical role in preparing Royal Navy ships for
the UK Carrier Strike Group 2025 and the Royal Navy selected our all-electric
Malloy T-150 uncrewed air systems (UAS) to transport vital supplies between
the ships for the first time during its deployment to the Indo-Pacific.
- We secured a $1.2bn (£0.9bn) contract to provide the US
Space Force with space-based missile tracking capabilities as the prime
contractor to design and build a constellation of satellites.
- Our Armored Multi-Purpose Vehicle (AMPV) programme
celebrated its 500(th) delivery milestone during the year and is executing
under full-rate production toward meeting the US Army's plan to field nearly
3,000 AMPVs in its Armored Brigade Combat Teams.
- We marked key combat vehicle milestones with the first
CV9030 MkIV infantry fighting vehicle unveiled for the Czech Republic and the
first three BvS10 vehicles presented to Sweden, Germany and the UK.
- Her Royal Highness The Princess of Wales officially named
HMS Glasgow, the first of eight Type 26 frigates we are building for the Royal
Navy. Final outfitting continues on HMS Glasgow and HMS Cardiff at our
Scotstoun yard, whilst HMS Belfast, HMS Birmingham and HMS Sheffield are
progressing at our Govan site.
- We laid the keel of HMS Dreadnought, the first of four
Dreadnought Class submarines we are constructing for the Royal Navy, at our
Barrow-in-Furness shipyard in the UK.
Investing in tomorrow
Alongside strong operational delivery, we continue to invest in our people,
R&D and capital expenditure. Highlights included:
- We officially opened the Janet Harvey Hall at our Govan site
in Glasgow, UK. The hall has capacity for two Type 26 frigates to be
constructed side-by-side, with HMS Belfast and HMS Birmingham currently under
construction in the hall.
- Her Royal Highness The Princess Royal officially opened our
Applied Shipbuilding Academy in Glasgow, UK. The £12m facility comprises a
multi-purpose flexible learning hub and provides a high quality, hands-on
training environment.
- In the UK, Secretary of State for Defence, John Healey,
opened our Sheffield facility where we will initially deliver M777 howitzers,
with plans to evolve to develop and produce a range of combat systems to
support the Government's ambitions to revitalise UK artillery capacity.
- We opened a new shiplift and land-level repair complex at
our Jacksonville, Florida, shipyard. The $250m (£190m) investment
significantly enhances the capabilities of the complex and increases its
capacity to maintain and repair US Navy vessels and commercial ships.
- We continued to invest in our manufacturing site in
Louisville, Kentucky, and shipyard in Jacksonville, Florida to ensure we have
the capability and capacity to build and support the US Navy, and its maritime
partners, in the future build of submarines and surface ship maintenance.
- During the year, we recruited over 2,500 early careers
employees across our key markets and we have a record 6,800 apprentices,
graduates and undergraduates in training across our UK businesses.
Capital deployment
- The Board has recommended a final dividend of 22.8p, taking
the total dividend for 2025 to 36.3p - an increase of 10% on last year.
Subject to shareholder approval, the final dividend will be paid on 4 June
2026 to shareholders on the share register on 24 April 2026.
- During the year, the Company repurchased 30m shares under
our share buyback programme, at a cost of £502m. Combined with dividends, the
Group returned £1,529m to shareholders in the year ended 31 December 2025.
Group guidance(1) for 2026
Guidance is provided on the basis of an exchange rate of $1.32:£1, which is
in line with the actual 2025 exchange rate.
Results
Year ended 31 December 2026 Guidance Year ended 31 December 2025
Sales Increase by 7% to 9% £30,662m
Underlying EBIT Increase by 9% to 11% £3,322m
Underlying EPS Increase by 9% to 11% 75.2p
Free cash flow >£1.3bn £2.2bn
Three-year cumulative free cash flow guidance Guidance
Cumulative free cash flow 2024-2026 In excess of £6.0bn
(previously in excess of £5.5bn)
Cumulative free cash flow 2025-2027 In excess of £5.5bn
Cumulative free cash flow 2026-2028 In excess of £6.0bn
- Underlying net finance costs c.£370m
- Effective tax rate c.22%
- Non-controlling interests c.£80m
Sensitivity to foreign exchange rates: the Group operates in a number of
currencies, the most significant of which is the US dollar. As a guide,
a 5
cent movement in the £/$ exchange rate will impact sales by c.£500m,
underlying EBIT by c.£70m and underlying EPS by c.1.4p.
1. While the Group is subject to geopolitical and other
uncertainties, the following guidance is provided on current expected
operational performance. The guidance is based on the measures used to monitor
the underlying financial performance of the Group.
For further information please contact:
Investor Relations Media Relations
Telephone: +44 (0) 1252 383455 Telephone: +44 (0) 7540 628673
Email: investors@baesystems.com Email: kristina.anderson@baesystems.com
Analyst and investor presentation
A presentation, for analysts and investors, of the Group's Results for 2025
will be available at 9.30am GMT today (18 February 2026) on the investor
website, followed by a live Q&A.
Details can be found on investors.baesystems.com, together with the
presentation slides and a copy of this report. A recording of the webcast will
be available for replay later in the day.
About BAE Systems
We are supporting our customers so that they can stay ahead of evolving
threats across land, sea, air, cyber and space. We are a workforce of
111,400(1) highly skilled people in more than 40 countries. Working with our
customers and local partners, we develop, engineer, manufacture and support
products and systems that deliver military capability, protect national
security and keep critical information and infrastructure secure.
1. As at 31 December 2025 and including share of equity
accounted investments.
Shareholder information
Registered office
6 Carlton Gardens
London
SW1Y 5AD
United Kingdom
Registered in England and Wales, No. 01470151
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 plc 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, appear in a number of places throughout this
document and include statements regarding the intentions, beliefs or current
expectations of BAE Systems plc concerning, among other things, its results in
relation to operations, financial condition, liquidity, prospects, growth,
commitments and targets (including environmental, social and governance
commitments and targets and the methodologies it uses to assess its progress
in relation to these), strategies and the industry in which it operates.
Forward-looking statements can be identified by the use of forward-looking
terminology such as "believes", "expects", "may", "intends", "will", "will
continue", "should", "would be", "seeks", "anticipates" or similar expressions
or the negative thereof or other variations thereof or comparable terminology.
Forward-looking statements can be made in writing but may also be made
verbally by directors, officers, and employees of BAE Systems plc (including
during presentations) in connection with this document. By their nature,
forward-looking statements involve risks and uncertainties because they relate
to events and depend on circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future performance and the
actual results of operations, financial condition and liquidity of BAE Systems
plc, the development of the industry in which it operates and the ability of
BAE Systems plc to meet its commitments and targets may differ materially from
those made in or suggested by the forward-looking statements contained in this
document. In addition, even if results of operations, financial condition and
liquidity of BAE Systems plc, the development of the industry in which it
operates and/or performance against commitments and targets are consistent
with the forward-looking statements contained in this document, those results,
developments or performance may not be indicative of results, developments or
performance in subsequent periods.
These forward-looking statements speak only as of the date of this document.
Subject to the requirements of the Disclosure Guidance and Transparency Rules,
the Market Abuse Regulation or applicable law, BAE Systems plc explicitly
disclaims any intention or obligation or undertaking publicly to release the
result of any revisions to any forward-looking statements in this document
that may occur due to any change in its expectations or to reflect events or
circumstances after the date of it. All subsequent written and oral
forward-looking statements attributable to either BAE Systems plc or to
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements referred to herein and contained elsewhere in this
document.
BAE Systems plc and its directors accept no liability to third parties in
respect of this document 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 and Section 463 of the Companies Act 2006 contain
limits on the liability of the directors of BAE Systems plc so that their
liability is solely to BAE Systems plc.
Preliminary results statement
Overview
Around the world, threats to national security continue to grow. This is
driving governments to increase defence spending, as they seek to ensure armed
forces are equipped to protect their nations and deter future aggression.
For decades, governments have placed trust in us to deliver their defence and
security capabilities. By focusing on operational excellence, innovation and
developing our people, we have consistently delivered cutting-edge
technologies, helping our customers stay ahead of evolving threats across
land, sea, air, cyber and space.
This approach helped us achieve another year of strong operational and
financial performance in 2025. Our highly relevant portfolio means we are well
positioned to continue supporting our customers.
Higher defence spending commitments across NATO are leading to increased
demand across most of our markets and domains. So, we are investing in our
business to ensure we have the capacity and capability to meet our customers'
evolving needs.
Our achievements in 2025 are a testament to the dedication of our people,
whose focus on protecting those who protect us remains at the core of
everything we do.
Delivering for our customers
We design, build and maintain cutting-edge defence and security capabilities
for our customers.
Our relentless focus on operational excellence supports consistent delivery on
critical long-term programmes like submarines, frigates, combat aircraft,
combat vehicles and electronic warfare systems, which form the backbone of our
customers' defence capabilities.
Notable achievements this year include the keel laying of HMS Dreadnought and
supporting the Royal Navy's Carrier Strike Group deployment, as well as
delivery of the final two Typhoon aircraft to the Qatar Emiri Air Force and
the 500(th) AMPV to the US Army.
We made good progress on key strategic international collaborations. Together
with our industry partners in Italy and Japan, we launched our new joint
venture, Edgewing, to design and develop next-generation combat aircraft under
GCAP. Working alongside ASC Pty Ltd, we also started initial mobilisation
activities to support the delivery of the SSN-AUKUS fleet of conventionally
armed, nuclear-powered submarines for the Royal Australian Navy.
Our financial performance
We delivered a strong financial performance, exceeding the upgraded guidance
we gave at the half year across our underlying EBIT, underlying EPS and free
cash flow targets. Sales came in at the higher end of our guidance range.
On a constant currency basis, we grew sales by 10%, while increasing
underlying EBIT by 12%, generating a return on sales of 10.8%. We delivered
£2,158m of free cash flow, taking our three-year cumulative free cash flow to
more than £7bn, comfortably ahead of our three-year guidance of £6bn for the
period from 2023 to 2025.
It was a very active year for discussions with customers to address their
evolving defence needs. Order intake momentum was positive, with £36.8bn of
work secured, lifting our order backlog to £83.6bn. This reflects strong
demand for the portfolio of cutting-edge technologies and services we offer
and enhances the forward visibility of our business.
We ended 2025 with a strong balance sheet, with net debt (excluding lease
liabilities) falling 22% to £3,844m, which equates to 0.9x underlying EBITDA.
We continue to invest in our business to support organic growth and capacity
expansion for key programmes. Our strong financial position allows us to
implement all parts of our capital allocation policy.
Investing in tomorrow
Investing in our people, technologies and facilities is essential to ensure we
maintain the agility needed to anticipate and address the evolving threats our
government customers face. We grew our global workforce by 4,000, including
more than 2,500 early careers employees in our key markets to sustain our
talent pipeline.
We increased our self-funded R&D to £407m and continue to collaborate
with partners and academia to drive innovation that will keep our customers
ahead of evolving threats. Key areas of focus include technologies like
electronic warfare, uncrewed systems, counter drone systems, laser-guided
weapons, synthetic training, electrification applications and space solutions.
Highlights include developing a low-cost, drone-based strike capability using
precision-guided munitions in just four months and deploying the same platform
to transport vital supplies between UK carrier strike group ships,
demonstrating its versatility.
After record capital expenditure in 2024, we maintained our high levels of
investment and spent around £1.0bn in the year to improve our systems and
facilities to enhance efficiency and capacity to meet the elevated global
demand. Notable investments included our new shiplift and land-level repair
complex at our shipyard in Jacksonville, Florida, our new ship build assembly
hall in Glasgow and a new artillery factory in Sheffield, all of which became
operational in the year.
We recognise there is always more that can be done and we are continuing to
focus on boosting production capacity, while driving productivity improvements
and cost efficiencies, to ensure we deliver for our customers now and into the
future.
Our capital distribution
Our disciplined approach to capital allocation, underpinned by the Group's
strong performance and positive outlook, has enabled us to continue delivering
returns to shareholders. After investments in our people, technologies and
capital expenditure, we returned £1,529m to shareholders during the year. The
Board has proposed a final dividend of 22.8p, subject to shareholder approval
at the 2026 Annual General Meeting (AGM), bringing the total dividend for 2025
to 36.3p - an increase of 10% over the prior year.
Our market differentiation
Our business has a unique combination of highly innovative capabilities, a
diverse geographic footprint and a multi-domain portfolio. We believe our
advanced technologies, deep domain expertise and global reach position us as
an industry leader, enabling us to support customers
in addressing the
heightened threat environment today and into the future. This breadth remains
a core strength and a differentiator for our business.
Looking ahead, our key growth drivers are spread across major markets and
include multi-national endeavours, such as GCAP and AUKUS, which highlight the
scale, global reach and longevity of our operations. Combined with our focus
on faster-paced disruptive technologies and the seamless integration of these
systems, we are well positioned for growth for many years to come.
Responsible business
We support our government customers in their primary responsibility to keep
citizens safe, while contributing to the economic and social development of
the communities where we operate.
Our people are central to everything we do, making it essential that we
attract and retain top talent to meet our customers' needs and support our
long-term growth. We invest in the development of our people's skills at every
stage of their careers and relentlessly focus on their safety, health and
wellbeing.
Across all our operations, maintaining the highest standards of conduct is at
the core of how we do business, enabling us to operate in a highly regulated
environment with strict regulations and applicable trade controls.
Summary investment case
We focus on careful long-term management and governance of our business to
deliver value for all our stakeholders. We have a strong track record of
delivering financial returns for investors. We are poised for long-term growth
in sales and profitability based on robust end markets, our operating model
and the strategic actions we are taking, presenting a compelling investment
case for current and prospective investors. This is supported by our seven key
advantages:
- We provide customers with world-class defence products and
capabilities across multiple markets.
- We undertake multi-decade programmes with long-term embedded
value. Our contract order backlog provides a high level of sales visibility,
driven by multi-year programmes.
- We have a growing global opportunity pipeline. Our diverse
geographic footprint supports us in pursuing excellent opportunities across
all sectors as countries around the world face up to the multi-faceted threat
environment.
- We foster a high-performance innovative culture and
consistently invest in R&D to build on existing world-leading capabilities
and generate new innovative and disruptive technologies.
- We have an intense focus on operational excellence, with
strong, consistent programme performance. We are focused on creating
value
for our investors and customers.
- Sustainability is embedded in our business. It forms part of
our strategic framework and underpins our purpose.
- We operate a value-enhancing operating model, undertaking
our core business activities with clear, consistent and careful
capital allocation.
Group financial review
Group income statement
Underlying -
as defined by the Group(1) Statutory -
as derived from IFRS
2025 2024 2025 2024
£m £m £m £m
Sales/Revenue 30,662 28,335 28,336 26,312
Underlying EBIT/Operating profit 3,322 3,015 2,925 2,685
Finance income 81 117 135 135
Finance costs (465) (513) (488) (488)
Net finance costs (384) (396) (353) (353)
Profit before tax 2,938 2,619 2,572 2,332
Tax expense (596) (469) (421) (291)
Profit for the year(2) 2,342 2,150 2,151 2,041
Return on Sales/Revenue 10.8 % 10.6 % 10.3 % 10.2 %
Reconciliation of underlying EBIT to operating profit
2025 2024
£m £m
Underlying EBIT 3,322 3,015
Adjusting items 40 23
Amortisation of programme, customer-related and other intangible assets, and (414 ) (344 )
impairment of equity accounted investments and intangible assets
Net finance income and tax of equity accounted investments (23 ) (9 )
Operating profit 2,925 2,685
As defined by the Group
Sales for the year were £30.7bn (2024 £28.3bn) representing growth, on a
constant currency basis, of 10% (2024 14%). On an organic basis sales grew by
9% on a constant currency basis.
Electronic Systems recorded sales of £7.5bn (2024 £7.2bn), equating to
growth of 8% (2024 35%) on a constant currency basis, which included the full
12-month benefit of our Space & Mission Systems (SMS) business and
reflects increased demand in the Electronic Combat and Countermeasure &
Electromagnetic Attack solutions businesses.
Platforms & Services posted sales of £5.0bn (2024 £4.4bn), with growth
of 17% (2024 15%) on a constant currency basis, as the sector works to deliver
on the recent increased demand for combat vehicles both in the US, through our
Combat Mission Systems business which was up 15%, and in Europe, through our
Hägglunds and Bofors businesses where growth was 32%.
Our Air sector recorded sales of £9.3bn (2024 £8.5bn), representing growth
of 9% (2024 7%) on a constant currency basis. We continued to see increased
activities on the design and development of our Future Combat Air Programme,
as well as 17% growth in MBDA, through the year.
Maritime recorded sales of £6.8bn (2024 £6.2bn), with growth of 11% (2024
12%) on a constant currency basis, with increased activities across the
sector. Construction has continued across major programmes including
Dreadnought, Type 26 and Hunter Class frigates, and design work for SSN-AUKUS
is progressing.
Sales in the Cyber & Intelligence sector were £2.4bn (2024 £2.4bn), an
increase of 2% (2024 6%) on a constant currency basis, predominantly from
counter-UAS sales.
Underlying EBIT was up 12% (2024 14%), on a constant currency basis, to
£3,322m (2024 £3,015m), resulting in an increased return on sales for the
year of 10.8% (2024 10.6%). On an organic basis underlying EBIT grew 11% on a
constant currency basis.
Our Electronic Systems sector grew underlying EBIT to £1,162m (2024
£1,071m), an increase of 12% (2024 25%) on a constant currency basis, and
generated a return on sales of 15.4% (2024 14.9%). The growth in underlying
EBIT benefitted both from an increase in sales and a full 12-month
contribution from SMS.
Platforms & Services reported underlying EBIT of £576m (2024 £448m), an
increase of 30% (2024 29%) on a constant currency basis, with return on sales
increasing to 11.4% (2024 10.2%). The growth reflected the demand for combat
vehicles in the US and Europe as production ramped up across Bradley, CV90 and
AMPV.
Our Air sector reported underlying EBIT of £1,108m (2024 £1,007m), an
increase of 10% (2024 7%) on a constant currency basis, maintaining a strong
return on sales of 11.9% (2024 11.8%), which reflected good operational
performance.
Maritime reported underlying EBIT of £457m (2024 £474m), a decrease of 3%
(2024 increase of 12%) on a constant currency basis. The return on sales of
6.7% (2024 7.7%) reflected the early-stage maturity of the portfolio with
several first-in-class programmes trading at relatively low margins as we
invest in additional capacity and capability both within our shipyards and the
supply chain to support programme delivery.
Finally, Cyber & Intelligence reported underlying EBIT of £223m (2024
£199m), with a return on sales of 9.3% (2024 8.3%), with a full-year
contribution from Kirintec.
Adjusting items totalled a net gain of £40m (2024 £23m). During the year,
the Group realised a net profit of £51m for pension-related gains, largely in
relation to a review of US pension arrangements (£58m), and a £12m profit on
the disposal of a portion of our remaining shareholding in Air Astana. This
was partially offset by £22m of integration-related costs, primarily in
relation to SMS, and £1m of costs related to historic transactions. The prior
year gain reflected a net profit of £94m on a number of non-core businesses
disposals and a settlement gain of £13m on a US pension buyout, offset by
£72m of acquisition and integration-related costs and £12m of other costs
related to historic transactions.
As derived from IFRS
Revenue was £28.3bn (2024 £26.3bn), with growth during the year of 8% (2024
14%) on a reported currency basis, which reflected the same drivers behind the
increase in sales, excluding the impact of MBDA and our other equity accounted
investments.
Operating profit increased 9% (2024 4%) to £2,925m (2024 £2,685m) on a
reported currency basis. On an operating sector basis, this reflected the same
drivers as underlying EBIT, however, operating profit was impacted by
additional costs from the amortisation of acquired intangibles and impairment
of equity accounted investments and intangibles, which increased by £70m to
£414m in 2025 (2024 £344m), primarily due to the impact of a full 12-months
amortisation of intangibles acquired with SMS.
1. The definition and purpose of all performance measures
defined by the Group is provided in the Alternative performance measures
section on page 40.
2. On a Group basis, £89m (2024 £85m) of profit for the year
is attributable to non-controlling interests, with £2,253m (2024 £2,065m)
attributable to equity shareholders. On an IFRS basis, £89m (2024 £85m) of
profit for the year is attributable to non-controlling interests, with
£2,062m (2024 £1,956m) attributable to equity shareholders.
Earnings per share (EPS)
As defined by the Group(1) 2025 2024
Underlying earnings for the year attributable to equity shareholders £2,253m £2,065m
Underlying EPS 75.2p 68.5p
As derived from IFRS 2025 2024
Profit for the year attributable to equity shareholders £2,062m £1,956m
Basic EPS 68.8p 64.9p
As defined by the Group
Underlying EPS increased to 75.2p (2024 68.5p), 12% on a constant currency
basis, largely driven by the improved underlying profit for the year, with
detailed movements set out in the table below.
As derived from IFRS
Basic EPS increased 6% to 68.8p (2024 64.9p) with the gain in underlying EBIT
being offset by the amortisation of programme, customer-related and other
intangible assets, and impairment of equity accounted investments and
intangible assets, as well as an increase in the Group's effective tax rate.
Movement in underlying EPS
2025 2024
pence pence
As at 1 January 68.5 63.2
Foreign exchange (1.1 ) (1.0 )
Underlying EBIT (excluding impact of M&A activity) 9.3 5.7
Impact of M&A activity - 0.6
Underlying net finance costs (excluding impact of M&A activity) 0.1 (1.4 )
Tax (1.9 ) 1.0
Share repurchases 0.3 0.4
As at 31 December 75.2 68.5
Orders
As defined by the Group(1) 2025 2024
£bn £b
n
Order intake 36.8 33.7
Order backlog 83.6 77.8
As derived from IFRS 2025 2024
£bn £b
n
Order book(2) 63.1 60.4
As defined by the Group
Order intake was £36.8bn, which has lifted order backlog to a record of
£83.6bn. Our book to bill ratio was 1.2 and reflected the continued relevance
of our diverse geographic footprint and multi-domain capabilities, with all
operating sectors recording strong order intake for the year.
Details of awards in the year are covered in the segmental reviews on pages 13
to 21, with significant orders in the year including:
- In Electronic Systems, the £8.7bn of order intake featured
c.£2bn from SMS, including orders for missile warning and tracking systems
for the US Space Force.
- In Platforms & Services, the £6.2bn of order intake
featured strong contract awards for our US combat vehicle programmes of
c.£2bn, as well as continued European orders in our Bofors and Hägglunds
businesses.
- The Air sector recorded orders totalling £14.6bn. The
agreement with Türkiye, to acquire 20 Typhoon aircraft and weapons, amounted
to £4.6bn alongside increased orders in US Programmes and Future Combat Air
Systems. Our share of orders through MBDA was in excess of £4bn.
- The Maritime sector recognised orders of £5.0bn
predominantly for the Submarines business, as well as the next major phase of
Canada's River Class destroyer programme and Australia's Hobart Class combat
system upgrade.
1. The definition and purpose of all performance measures
defined by the Group is provided in the Alternative performance measures
section on page 40.
2. Order book represents the transaction price allocated to
unsatisfied and partially satisfied performance obligations as defined by IFRS
15 Revenue from Contracts with Customers.
Net debt (excluding lease liabilities)
Components of net debt(1) 2025 2024
£m £m
Cash and cash equivalents 3,438 3,378
Debt-related derivative financial instruments (net) 3 89
Loans - non-current (7,190 ) (7,713 )
Loans - current (95 ) (699 )
Net debt (excluding lease liabilities) (3,844 ) (4,945 )
Cash and cash equivalents of £3,438m (2024 £3,378m) are held primarily for
management of working capital as well as the repayment of debt securities,
pension funding when required and committed shareholder returns.
The Group's net debt (excluding lease liabilities) at 31 December 2025 was
£3,844m (2024 £4,945m), a net decrease of £1,101m (2024 increase of
£3,923m) from the position at the start of the year, with detailed movements
set out in the table below.
Other movements comprised foreign exchange on the Group's US
dollar-denominated cash and borrowings, offset by their associated
derivatives, and dividends paid to non-controlling interests.
Movement in net debt (excluding lease liabilities)
2025 2024
£m £m
As at 1 January (4,945 ) (1,022 )
Operating business cash flow 2,787 3,093
Interest and tax (629 ) (588 )
Shareholder returns (1,529 ) (1,492 )
Business transactions and other 472 (4,936 )
As at 31 December (3,844 ) (4,945 )
1. The definition and purpose of all performance measures
defined by the Group is provided in the Alternative performance measures
section on page 40.
Balance sheet
2025 2024
£m £m
Goodwill 12,732 13,297
Other intangible assets 2,513 2,965
Property, plant and equipment, right-of-use assets and investment property 6,835 6,636
Equity accounted investments and other investments 822 906
Working capital (6,499 ) (6,386 )
Lease liabilities net of finance lease receivables (1,742 ) (1,817 )
Group's share of net IAS 19 post-employment benefits surplus 844 768
Net tax assets 285 422
Net other financial liabilities (9 ) (69 )
Net debt (excluding lease liabilities) (3,844 ) (4,945 )
Net assets 11,937 11,777
Goodwill of £12.7bn (2024 £13.3bn) was a decrease of £0.6bn on the prior
year, driven by foreign exchange translation of the Group's US
dollar-denominated goodwill.
Other intangible assets of £2.5bn (2024 £3.0bn) was a decrease of £0.5bn on
the prior year, driven by amortisation of acquired intangibles of £0.3bn,
predominantly due to the assets acquired from Ball Aerospace in 2024, combined
with foreign exchange movements.
Property, plant and equipment, right-of‑use assets and investment property
was £6.8bn (2024 £6.6bn), an increase of £0.2bn as significant investment
in both facilities and expansion of capacity across the Group was offset by
the impact of depreciation and foreign exchange.
Equity accounted investments and other investments was £822m (2024 £906m) as
the Group's share of profit from its equity accounted investments of £219m
was more than offset by dividends received in the year of £304m.
The Group's share of the net IAS 19 post-employment benefits surplus was
£0.8bn (2024 £0.8bn), net of a 25% (2024 25%) withholding tax of £0.4bn
(2024 £0.4bn). Details of the Group's post-employment benefit schemes are
provided in note 6.
Cash flow
As defined by Group(1) 2025 2024
£m £m
Free cash flow 2,158 2,505
Operating business cash flow 2,787 3,093
As derived from IFRS 2025 2024
£m £m
Net cash flow from operating activities 3,432 3,925
Net cash flow from investing activities (541 ) (5,269 )
Net cash flow from financing activities (2,774 ) 695
Net increase/(decrease) in cash and cash equivalents 117 (649 )
Cash and cash equivalents at 1 January 3,378 4,067
Effect of foreign exchange rate changes on cash and cash equivalents (57 ) (40 )
Cash and cash equivalents at 31 December 3,438 3,378
As defined by the Group
Free cash flow of £2,158m (2024 £2,505m) reflected higher than anticipated
customer advances towards the end of the year together with good operational
cash conversion.
Operating business cash flow of £2,787m (2024 £3,093m) was a decrease of
£306m (2024 £125m). Although the Group received significant net customer
advances, these were lower than the prior year. The net customer advances were
offset by a high level of capital expenditure of £957m (2024 £987m) as we
invested in our facilities to increase capacity and efficiency across the
Group.
As derived from IFRS
Net cash flow from operating activities was £3,432m (2024 £3,925m), a
decrease of £493m (2024 £165m) primarily resulting from lower net customer
advances received during the year.
Net cash flow from investing activities was an outflow of £541m (2024
£5,269m). Capital expenditure remained high in the year at £957m (2024
£987m) as we continued to invest in our facilities across the Group. This was
offset by dividends from our equity accounted investments, interest and cash
proceeds on the partial disposal of our shareholding in Air Astana. The prior
year reflected significant M&A investment across a number of acquisitions,
including Ball Aerospace, which accounted for a net cash outflow of £4.8bn,
as well as capital expenditure of £1.0bn. This was offset by cash proceeds of
£194m from non-core business disposals.
Net cash flow from financing activities was an outflow of £2,774m (2024
inflow of £695m), a decrease of £3,469m (2024 increase of £2,883m). Cash
returns to shareholders, through dividend and share repurchases amounted to
£1,529m (2024 £1,492m). Although dividends increased to £1,027m (2024
£937m), the value of share repurchases was lower at £502m (2024 £555m).
During 2025, we repurchased 30m shares under the 2023 share buyback programme
(2024 43m shares under the 2022 and 2023 share buyback programmes). The Group
repaid debt finance of £562m, compared to a net cash inflow from debt finance
of £3,139m in the prior year.
Exchange rates
Average Year end
2025 2024 2025 2024
£/$ 1.319 1.278 1.345 1.253
£/€ 1.167 1.181 1.145 1.210
£/A$ 2.045 1.938 2.017 2.023
1. The definition and purpose of all performance measures
defined by the Group is provided in the Alternative performance measures
section on page 40.
Segmental review
As defined by the Group(1)
Year ended 31 December 2025 Sales Underlying EBIT Return on sales Operating business cash flow Order intake Order backlog
£m £m % £m £bn £b
n
Electronic Systems 7,528 1,162 15.4 % 1,337 8.7 13.6
Platforms & Services 5,039 576 11.4 % 166 6.2 15.0
Air 9,299 1,108 11.9 % 904 14.6 32.6
Maritime 6,797 457 6.7 % 373 5.0 21.3
Cyber & Intelligence 2,397 223 9.3 % 59 2.7 2.1
HQ(2) 232 (204 ) - (52 ) 0.2 -
Deduct Intra-group (630 ) - - - (0.6 ) (1.0 )
Total 30,662 3,322 10.8 % 2,787(3) 36.8 83.6
As derived from IFRS
Year ended 31 December 2025 Revenue Operating profit Return on revenue Net cash flow from operating activities Order book
£m £m % £m £b
n
Electronic Systems 7,507 863 11.5 % 1,571 9.1
Platforms & Services 5,021 576 11.5 % 392 14.6
Air 7,372 1,078 14.6 % 873 18.5
Maritime 6,579 431 6.6 % 673 20.5
Cyber & Intelligence 2,397 182 7.6 % 115 1.4
HQ(2) 52 (205 ) - 4 -
Deduct Intra-group (592 ) - - - (1.0 )
Deduct Tax(4) - - - (196 ) -
Total 28,336 2,925 10.3 % 3,432 63.1
1. The definition and purpose of all performance measures
defined by the Group is provided in the Alternative performance measures
section on page 40.
2. HQ comprises the Group's head office activities, together
with a 17% interest in Air Astana up to the date of disposal of a portion of
the shareholding. The remaining 7% share is no longer equity accounted by the
Group.
3. At a Group level, the key cash flow metric is free cash
flow (see Alternative performance measures on page 40). In 2025, free cash
flow was £2,158m (2024 £2,505m).
4. Tax is managed on a Group-wide basis.
Segmental performance: Electronic Systems
Electronic Systems, with 22,400(1) employees, comprises our US- and UK-based
Electronic Systems business and our US-based Space & Mission Systems
business.
Financial performance
Financial performance measures defined by Group(2) Financial performance measures derived from IFRS
2025 2024 Variance(3) 2025 2024 Variance(3)
Sales £7,528m £7,189m +8 % Revenue £7,507m £7,186m +4 %
Underlying EBIT £1,162m £1,071m +12 % Operating profit £863m £708m +22 %
Return on sales 15.4 % 14.9 % +50 bps Return on revenue 11.5 % 9.9 % +160 bps
Operating business cash flow £1,337m £801m £536m Cash flow from operating activities £1,571m £1,044m £527m
Order intake £8.7bn £7.3bn £1.4bn
Order backlog £13.6bn £12.7bn £0.9bn Order book £9.1bn £8.6bn £0.5bn
- The Electronic Systems sector booked orders of £8.7bn,
featuring c.£2bn from our SMS business including missile warning and tracking
satellite systems for the US Space Force.
- Sales increased by 8%, benefitting from a full year of SMS
sales, alongside increased demand across the sector.
- Growth in underlying EBIT of 12% reflected an increased
return on sales of 15.4%, including a strong contribution from SMS.
- Operating cash flow was £1,337m, reflecting strong
operational cash conversion and cash advances from customers.
1. Including share of equity accounted investments.
2. The definition and purpose of all performance measures
defined by the Group are provided in the Alternative performance measures
section on page 40.
3. Growth rates for sales and underlying EBIT are on a
constant currency basis. All other growth rates and year-on-year movements are
on a reported currency basis.
Operational performance
Demand was strong across our Electronic Systems customer base in 2025 as
evidenced by our order intake. We supported customers on key electronic
warfare and precision-guided munition programmes, while pursuing and maturing
innovative capabilities. In commercial avionics, airline traffic continues to
grow globally, resulting in stronger demand for our OEM products and
aftermarket services.
Our SMS business is delivering strong programme performance centred on
customer relationships and growth, particularly in military space. Core
defence programmes remain aligned with US Government priorities and we are
leveraging our proven capabilities in tactical space systems in response to
increasing demand.
Key operational points for the year
- Our SMS team supported the launch of NASA's Carruthers
Geocorona Observatory and NOAA's Space Weather Follow On L-1 spacecraft. We
leveraged commercial best practices to design and build both satellites and
are supporting mission operations to study and monitor space weather.
- We celebrated the launch of NASA's SPHEREx Observatory,
equipped with the BAE Systems-built spacecraft bus, telescope and RAD750®
single-board computer, subsequently seeing "first light" images from the
mission.
- We introduced our new Elevation(TM) spacecraft product line,
featuring common system components and defined configurations for enhanced
affordability and rapid deployment. The Trek bus variant was selected to
support our recent contract to build the next-generation Resilient Missile
Warning & Tracking (RMWT) satellite system.
- The US Space Force formally accepted the Weather System
Follow-on-Microwave satellite into operations. As the mission prime, we built
the spacecraft bus and microwave imager and are performing mission operations
supporting critical, time-sensitive data to enhance weather forecasting for
military operations.
- The Air Force Research Laboratory awarded our SMS team the
FORGE-IT contract to continue development and deployment of the Battlefield
Assisted Trauma Distributed Operations Kit to enhance time-sensitive medical
care on the battlefield.
- Our EA-37B programme team is executing contracts, including
for international support, valued at more than $1.45bn (£1.1bn). Under
Baseline 3, we are focused on cross-decking the prime mission equipment and
have delivered five aircraft for formal testing and training. Future baselines
are in development to evolve the electro-magnetic attack capability.
- Our Eagle Passive Active Warning Survivability System was
successfully fielded, with two F-15Es delivered to RAF Lakenheath in the UK,
and we are under contract for full-rate production.
- The F-35 Lightning II programme delivered approximately 180
electronic warfare suites to Lockheed Martin, including 100 of the Block 4
configuration.
- We delivered the 1,000(th) infrared seeker to Lockheed
Martin for integration on the Terminal High Altitude Area Defense (THAAD)
interceptor missile. In response to increased demand, the THAAD 2-Color
Infrared Seeker development programme is underway to field next-generation
capabilities to defeat evolving threats.
- The AN/ARC-231A Multi-mode Aviation Radio Set has completed
initial installation and is operationally ready for use on select US Army
rotary-wing aircraft. This milestone marks a major step forward in equipping
warfighters with an advanced, secure and fast-operating communications
solution to inform key decisions in the field.
Strategic and order highlights
- Our SMS team secured a $1.2bn (£0.9bn) US Space Systems
Command contract for the RMWT - Medium Earth Orbit Epoch 2 programme to build
the next-generation RMWT satellite system. As the mission prime, we will
develop and integrate multiple satellite buses and payloads and provide ground
command, control and mission operation capabilities.
- We are building the spacecraft bus for NOAA's upcoming Space
Weather Next L1 Series mission under a $230m (£174m) contract to continue
providing valuable data to NOAA's Space Weather Prediction Center.
- Under the FORGE C2 contract, worth $151m (£114m), we are
developing a next-generation ground system for US Space Force missile-warning
satellites.
- We secured a $322m (£244m) order for Advanced Precision
Kill Weapon System (APKWS®) laser-guidance kits under the follow-on,
five-year $1.7bn (£1.3bn) Indefinite Delivery, Indefinite Quantity contract
awarded in August. We continue to demonstrate APKWS counter-UAS capability,
recently in conjunction with the Group's Malloy platforms.
- We secured a low rate initial production contract from the
US Navy to produce three units of the Advanced Survivability Pods for P-8
Poseidon aircraft.
- The Common Missile Warning System programme is executing on
$250m (£190m) of foreign military sales contracts, with a further $138m
(£105m) received in December.
- The Long-Range Anti-Ship Missile programme continues
production deliveries for Lots 7 and 8 and has been awarded a $360m (£273m)
contract for the large lot procurement effort, which includes the C1 baseline
configuration.
- We secured a $129m (£98m) follow-on production order from
Data Link Solutions, our joint venture with Collins Aerospace, Inc., under its
US Navy contract to deliver the Multifunctional Information Distribution
System Joint Tactical Radio System on production Lot 14.
Looking forward
- Our Electronic Systems sector remains positioned for growth
in the medium term through its diverse portfolio of defence and commercial
products and innovative capabilities for US and international customers.
- Over the long term, we are poised to benefit from our
technology strengths spanning precision weaponry, space resilience,
hyper-velocity projectiles, autonomous platforms and the development of
multi-domain capabilities. We are also expanding our engineering and
manufacturing capacity to grow our position in the emerging market for energy
storage and power management solutions to support aircraft electrification.
- In SMS, we continue to drive growth by expanding product
lines from spacecraft and payloads to ground systems. We are collaborating
across segments to identify and deliver combined capabilities to address
customers' mission needs and capture new and adjacent opportunities, such as
those of the US Golden Dome missile defence initiative.
Segmental performance: Platforms & Services
Platforms & Services, with 12,100(1) employees and operations in the US,
Sweden and the UK, manufactures and upgrades combat vehicles, weapons and
munitions, and delivers services and sustainment activities, including US
naval ship repair and the management and operation of two government-owned,
contractor-operated ammunition plants.
Financial performance
Financial performance measures defined by Group(2) Financial performance measures derived from IFRS
2025 2024 Variance(3) 2025 2024 Variance(3)
Sales £5,039m £4,390m +17 % Revenue £5,021m £4,344m +16 %
Underlying EBIT £576m £448m +30 % Operating profit £576m £456m +26 %
Return on sales 11.4 % 10.2 % +120 bps Return on revenue 11.5 % 10.5 % +100 bps
Operating business cash flow £166m £732m £(566)m Cash flow from operating activities £392m £976m £(584)m
Order intake £6.2bn £7.4bn £(1.2)bn
Order backlog £15.0bn £14.3bn £0.7bn Order book £14.6bn £13.6bn £1.0bn
- Order intake of £6.2bn included significant orders in
Europe for our Hägglunds and Bofors businesses and c.£2bn of US combat
vehicle orders. The segment closed the year with order backlog of £15.0bn,
which has resulted from the significant demand in Europe for both CV90 and
BVS10 over the last few years.
- Sales recorded the highest growth across the Group in the
year, at 17%, with European growth from Hägglunds and Bofors at 32%, while
the US combat vehicle business grew 15%.
- Underlying EBIT grew 30% which reflected an increased return
on sales of 11.4% as production volumes increased.
- The reduction in operating business cash flow reflected the
timing of customer advances, with those received in the prior year unwinding
into the supply chain.
1. Including share of equity accounted investments.
2. The definition and purpose of all performance measures
defined by the Group are provided in the Alternative performance measures
section on page 40.
3. Growth rates for sales and underlying EBIT are on a
constant currency basis. All other growth rates and year-on-year movements are
on a reported currency basis.
Operational performance
With a strong order backlog across our diverse portfolio of innovative
products and services, we remain dedicated to delivering on our customer
commitments, driving operational excellence and investing in infrastructure to
maintain a solid foundation for sustained growth. We continue to scale our
Combat Mission Systems and Maritime Solutions (formerly US Ship Repair)
divisions to support the US maritime industrial base, enhancing our
manufacturing capabilities by upgrading welding, machining and heavy-lift
capacity to support submarine construction and component fabrication.
We marked multiple milestones to expand our production capacity, spanning
facilities in Sheffield, UK; Jacksonville, Florida; Minneapolis, Minnesota;
and across our Swedish sites. Our Hägglunds business continues to ramp up
efforts to meet customer expectations and transition
current programmes from
development to delivery in line with agreed schedules.
Key operational points for the year
- Our AMPV programme celebrated its 500(th) delivery milestone
during the year and is executing under full-rate production toward meeting the
US Army's plan to field approximately 3,000 AMPVs in its Armored Brigade
Combat Team formations.
- We directed R&D efforts into developing a series of AMPV
capability kits to advance future combat innovations, including counter-UAS
detection and targeting, ground autonomy and uncrewed turrets.
- We partnered with the US Army to advance our capabilities
through successful tests of the Scorpio-XR extended range projectile that more
than doubled the precision range of existing cannon artillery munitions.
- Our Hägglunds team marked key milestones with the first
CV9030 MkIV infantry fighting vehicle unveiled for the Czech Republic and the
first three BvS10 vehicles presented to Sweden, Germany and the UK.
- We announced a license agreement with Wojskowe Zakłady
Motoryzacyjne SA for in-country fleet support of Poland's M88A2s and signed a
Memorandum of Understanding with Champion Auto to pursue sustainment
opportunities in Taiwan. We also continued to deliver Bradleys to Croatia and
M88A2s to Poland.
- We renamed our Maritime Solutions business to reflect its
broader mission to serve a wide range of military and commercial customers.
Our Jacksonville, Florida, shipyard continued fabrication work for Virginia-
and Columbia-class submarines and Arleigh Burke-class destroyers. Our
Jacksonville team commenced operations in June of its new shiplift and
land-level repair facility that expanded capacity beyond its existing
operational drydock and increased support of submarine construction.
- Our Ordnance Systems Inc. team continues to progress the new
Nitrocellulose Facility at the Radford Army Ammunition Plant. The endurance
run was successfully completed.
- In the UK, we opened our Sheffield facility where we will
initially deliver M777 howitzers, with plans to evolve to develop and produce
a range of combat systems to support the UK Government's ambitions to
revitalise and sustain UK artillery capacity.
Strategic and order highlights
- Our Bofors business signed a framework agreement with Latvia
to supply 18 ARCHER Mobile Howitzers and Sweden procured another 18 ARCHERs as
part of a military support package.
- Our Bofors business secured its first order from Sweden for
TRIDON Mk2 systems, a highly adaptable, cost-effective solution designed to
provide rapid counter-UAS capabilities that are currently operational in
Europe.
- Our Hägglunds business won a $450m (£341m) contract to
deliver 44 additional CV90MkIIIC vehicles to Denmark.
- Our Combat Mission Systems team secured a number of orders
across its vehicle portfolio, including contracts for more than $360m (£273m)
from the US Marine Corps for Amphibious Combat Vehicles (ACVs), two long-lead
awards worth approximately $550m (£417m) to produce additional AMPVs, and a
$396m (£300m) contract from the US Army to produce additional upgraded
Bradley A4 vehicles.
- We also received two multi-year contracts from the US Army
totalling more than $973m (£738m) for M109A7 Paladin Self-Propelled Howitzer
sets.
- Across our US shipyards, we won approximately $1.0bn
(£0.8bn) in US Navy contracts featuring awards for the USS Somerset, USS Oak
Hill, USS Forrest Sherman and USS The Sullivans.
Looking forward
- We continue to shape our business to deliver on increased
demand from US and international customers for production and sustainment of
combat vehicles and artillery systems. The AMPV, M109A7, M88, Bradley and ACVs
in our US vehicle portfolio are gaining increased international interest due
to their proven capabilities.
- In our maritime businesses, we are focused on sustaining our
naval gun, missile launch and submarine positions, as well as US Navy ship
repair, modernisation and growing fabrication activities.
- Across our Swedish businesses, we continue to build a
growing pipeline of opportunities for the CV90, BvS10 and Beowulf from
Hägglunds, as well as for artillery, naval and air defence systems and
munitions from Bofors.
Segmental performance: Air
Air, with 30,600(1) employees, comprises our UK‑based aircraft build and
support activities for European and international markets, US programmes,
development of our Future Combat Air System and FalconWorks(®), alongside our
business in the Kingdom of Saudi Arabia and interests in our joint ventures:
Edgewing, Eurofighter and MBDA.
Financial performance
Financial performance measures defined by Group(2) Financial performance measures derived from IFRS
2025 2024 Variance(3) 2025 2024 Variance(3)
Sales £9,299m £8,519m +9 % Revenue £7,372m £6,880m +7 %
Underlying EBIT £1,108m £1,007m +10 % Operating profit £1,078m £1,009m +7 %
Return on sales 11.9 % 11.8 % +10 bps Return on revenue 14.6 % 14.7 % -10 bps
Operating business cash flow £904m £1,243m £(339)m Cash flow from operating activities £873m £1,359m £(486)m
Order intake £14.6bn £8.3bn £6.3bn
Order backlog £32.6bn £26.8bn £5.8bn Order book £18.5bn £15.6bn £2.9bn
- The Air sector had a strong year with good growth in sales
and underlying EBIT, high order intake and a material step up in our order
backlog.
- Sales increased by 9%, mainly driven by our Future Combat
Air System programme, MBDA and European & International Markets, which
flowed through to underlying EBIT,generating a return on sales of 11.9%.
- Operating cash flow was £904m. The lower level compared to
2024 reflected advance payments in the prior year, which were flowed to our
supply chain in 2025.
- Order intake was £14.6bn, a 76% increase, which reflected
high demand for our capabilities and services. This increased our order
backlog by 22% to £32.6bn.
1. Including share of equity accounted investments.
2. The definition and purpose of all performance measures
defined by the Group are provided in the Alternative performance measures
section on page 40.
3. Growth rates for sales and underlying EBIT are on a
constant currency basis. All other growth rates and year-on-year movements are
on a reported currency basis.
Operational performance
We continue to work with our UK and international customers to support their
existing platforms and provide new enhanced capabilities. Deliveries of
Typhoon aircraft to Qatar were completed in the year, alongside support to the
in-service fleet. Our US Programmes business remains focused on delivery
execution across all production lines. Our Future Combat Air Systems and
FalconWorks® organisations continue to invest in our people, facilities and
cutting-edge technologies to deliver disruptive capabilities to our customers.
Key operational points for the year
- We delivered the final two Typhoon aircraft to Qatar during
the year, bringing the Qatari Emiri Air Force fleet total to 24. We also
continue to deliver Typhoon major units in support of core European customer
orders, with 13 completed during the year.
- Our US Programmes business completed 153 AFTs in 2025. The
current Production Lots 18/19 support the continuation of production
deliveries at Samlesbury, UK, through to 2027.
- The Royal Navy selected our all-electric Malloy T-150 UAS to
transport vital supplies between UK Carrier Strike Group ships for the first
time during their deployment to the Indo-Pacific.
- We continue to progress construction of the UK's Flying
Combat Air Demonstrator, which will test next-generation skills, tools,
processes and techniques needed to underpin GCAP and the entry into service of
the core aircraft platform, which will be called Tempest in the UK. In July,
alongside our industry partners and the Ministry of Defence, we revealed the
design as the aircraft reached a major milestone, with two-thirds of its
structural weight in manufacturing.
Strategic and order highlights
- In October, the Republic of Türkiye and the UK Government
signed a c.£5.4bn agreement which included the purchase of 20 Typhoon
aircraft along with an associated weapons package. We will be the prime
contractor and will manufacture major airframe components, undertake final
assembly of the aircraft and lead the weapons integration. We continue to work
with the two governments to secure a contract for future support of the
aircraft.
- We also secured further European Typhoon major units orders
for Germany (20) and Italy (8), totalling c.£0.8bn.
- We were awarded a contract for the full production of the
new European Common Radar System Mk2 advanced radar for the Royal Air Force's
Typhoon aircraft from the UK Ministry of Defence worth £454m.
- We launched Edgewing, a joint venture with our international
partners, Leonardo (Italy) and JAIEC (Japan), on GCAP. The new company, based
in Reading, UK, will be accountable for the design and development of the
next-generation combat aircraft and will remain the design authority for the
life of the product, which is expected to go out beyond 2070.
- Concept and assessment work on GCAP continues with our
international industry partners in all three nations under their respective
national contracts. We received a further £1.0bn of funding on the UK
assessment phase contract in the first half of the year.
- We created BAE Systems Arabian Industries Ltd by merging two
of our existing portfolio companies, enhancing our visibility and
participation within the military industry sector while creating further
opportunity; in accordance with our long-term strategy to support the Kingdom
of Saudi Arabia.
- MBDA continued to secure significant orders through 2025,
including further production orders with the French Air Force, Italian Air
Force and Army, German Armed Forces and the UK Royal Navy for ASTER 15 &
30 Block 1 missile; Indian Navy Rafale weapon package order for the METEOR
Beyond Visual Range Air-to-Air Missile (BVRAAM), MICA, SCALP and EXOCET AM39;
and a South Korean production order for the METEOR BVRAAM, which will enable
the Air Force to benefit from a common stockpile for both KF-21 and F-35. The
Lancaster House 2.0 Declaration at the 37th Franco-British Summit in July 2025
saw both the UK and French Armed Forces confirm their continued support for
Future Cruise/Anti-Ship Weapon development, now re-named as STRATUS Low
Observable & Rapid Strike.
Looking forward
- GCAP is a strategically important partnership that will not
only drive innovation and technological advancement but also promote
significant economic activity in the UK, Japan and Italy, with the aim of
securing the future of their respective combat air industries for decades.
- We will continue to focus on ensuring that Typhoon major
units and support deliverables are made in line with customer expectations.
Future Typhoon production and support sales are underpinned by existing
contracts. We continue to pursue future sales of Typhoon.
- We expect to sustain production of the rear fuselage
assemblies for the F-35 at current levels of approximately 150 aft fuselages
per year. Negotiations continue with Lockheed Martin to secure the full value
of Lots 20-22, which will continue production to 2030.
- In the Kingdom of Saudi Arabia, the In-Kingdom Industrial
Participation programme continues to make good progress consistent with our
long-term strategy, while supporting the Kingdom's National Transformation
Plan and Vision 2030. This includes a further package of industrialisation
agreed in 2025 on our Saudi British Defence Co-operation Programme. We expect
our Saudi in-Kingdom support business to remain stable, underpinned by
long-standing contracts, while we continue to address the Kingdom's current
and future combat air requirements.
- MBDA is well placed to benefit from increased defence
spending in Europe and internationally and is investing in critical resources
accordingly. The business has a strong order backlog, and development
programmes continue to enhance the long-term capabilities of the business in
air, land, sea and space domains.
Segmental performance: Maritime
Maritime, with 31,900(1) employees, comprises our UK‑based maritime and land
activities, including ship build and support activities, major submarine build
programmes, as well as our Australian business and interest in our RBSL joint
venture.
Financial performance
Financial performance measures defined by Group(2) Financial performance measures derived from IFRS
2025 2024 Variance(3) 2025 2024 Variance(3)
Sales £6,797m £6,187m +11 % Revenue £6,579m £6,002m +10 %
Underlying EBIT £457m £474m -3 % Operating profit £431m £465m -7 %
Return on sales 6.7 % 7.7 % -100 bps Return on revenue 6.6 % 7.7 % -110 bps
Operating business cash flow £373m £436m £(63)m Cash flow from operating activities £673m £734m £(61)m
Order intake £5.0bn £8.7bn £(3.7)bn
Order backlog £21.3bn £23.2bn £(1.9)bn Order book £20.5bn £22.3bn £(1.8)bn
- Order intake of £5.0bn included increased funding for our
Submarines business as well as the next major phase of Canada's River Class
destroyer programme. The prior year included £4.6bn for Batch 1 of the Hunter
Class frigates which are now under construction.
- The Maritime segment recorded double-digit sales growth of
11% as construction continued across major programmes including Dreadnought,
Type 26 and Hunter Class frigates, and design work for SSN-AUKUS.
- The lower return on sales of 6.7% reflects the early stage
maturity of the Maritime portfolio with several first-in-class programmes
trading at relatively low margins as we invest in in additional capacity and
capability both within our shipyards and the supply chain to support programme
delivery.
1. Including share of equity accounted investments.
2. The definition and purpose of all performance measures
defined by the Group are provided in the Alternative performance measures
section on page 40.
3. Growth rates for sales and underlying EBIT are on a
constant currency basis. All other growth rates and year-on-year movements are
on a reported currency basis.
Operational performance
Our major Maritime platforms continue to progress through their long-term
programmes. With five of the seven Astute Class submarines delivered to the
Royal Navy, work continues on the remaining two boats and on the construction
on the four Dreadnought Class submarines. We also continue to deliver in
accordance with our SSN-AUKUS contracts. Construction of the initial five UK
Type 26 frigates continues, and more than half of the units on the first
Australian Hunter Class frigate are in production. We also continue to deliver
on customer requirements in both munitions and services.
Key operational points for the year
- In September, His Majesty King Charles III commissioned the
sixth Astute Class submarine, Agamemnon, into service with the Royal Navy.
Agamemnon continues to progress through its in-water phase, while we also
continue construction on the final vessel in the class.
- We continue to make progress on the four Dreadnought Class
submarines, with advancing levels of construction underway on the first three
boats. In September, we cut steel on Boat 4 at our site in Barrow-in-Furness,
UK, and commenced early stage construction activities.
- We are progressing the Type 26 frigate programme of eight
ships for the Royal Navy. Investment in additional capacity and capability
continues both within our shipyards and the supply chain to support programme
delivery. Focus remains on the achievement of key milestones in advance of sea
trials for the first of class.
- During the year, Her Royal Highness The Princess of Wales
officially named HMS Glasgow at a ceremony in the UK. HMS Glasgow and HMS
Cardiff, the first two ships in class, are docked at our Scotstoun shipyard
and are progressing through final outfit. HMS Belfast and HMS Birmingham are
both under construction in our new Janet Harvey Hall. Units for the fifth ship
are also being constructed at our shipyard in Govan.
- October 2025 marked the first full year of RECODE, an
eight-year availability support programme signed in 2024. RECODE continues to
adapt to the changing operational needs of the Royal Navy, achieving 99%
combat systems equipment availability across the fleet against a target of
95%. Modernisation of our Combat Management System is using new development
principles to deliver capability into operation quickly.
- In Australia, construction of the Hunter Class frigate is
progressing with 45 of the 78 units of the first ship in production.
- Significant upgrade work is underway at our Osborne shipyard
on the first Air Warfare destroyer, HMAS Hobart. HMAS Parramatta, the final
Anzac Class frigate, undergoing the Midlife Capability Assurance Programme, is
in the final stages of production and commissioning, with full handover to the
Royal Australian Navy scheduled in 2026.
- The upgrade programme for the Royal Australian Air Force's
Hawk aircraft is approaching conclusion with installation of 32 of the 33
engines completed.
- Over the past 12 months, our teams based at Portsmouth Naval
Base continued to work side by side with the Royal Navy to support the
nation's defence ambitions at home and abroad. From the Carriers, the Type 23
frigates and Type 45 destroyers, to the batch 1 offshore patrol vessels and
the Hunt Class mine countermeasure ships - we continue to service and maintain
the critical assets that keep the UK safe.
- Our teams ensured HMS Prince of Wales and HMS Dauntless were
prepared and ready to deploy as part of the Royal Navy's UK Carrier Strike
Group in April.
- In RBSL, vehicle deliveries continue under the Boxer
programme, with 15 UK-built vehicles to date. On the Challenger 3 programme,
focus remains on design maturity to facilitate the transition to full
production. A total of six prototype tanks have been delivered with another
two in build.
Strategic and order highlights
- The Canadian Government announced that it will work with
Australia to establish an Arctic Over The Horizon Radar capability. As the
enterprise partner for Australia's over the horizon radar system, JORN, we
will support the Government in this important agreement.
- The initial mobilisation phase of the SSN-AUKUS programme in
Australia has commenced to support the future build of the SSN-AUKUS fleet of
conventionally armed, nuclear-powered submarines for the Royal Australian
Navy.
- We signed a contract with Canada's Irving Shipbuilding Inc.,
marking the start of the next major phase on the River Class destroyer
programme. The ship is based on the Type 26 platform with specified design
changes to meet the Royal Canadian Navy's requirements. Under this new
contract, we will provide support and consultancy services throughout the
build phase.
- We signed a new strategic partnership with PGZ to establish
a new ammunitions factory in Poland to produce 155mm artillery ammunition.
This is aimed at increasing the nation's production of ammunition.
Looking forward
- Our Submarines business is executing across three long-term
programmes: Astute; Dreadnought; and SSNA. Our focus remains on strengthening
our workforce, supply chain and infrastructure to provide the capability,
capacity and resilience required to deliver these long-term programmes.
- Preparations to start construction of the sixth Type 26
frigate, HMS Newcastle, are well underway with long-lead equipment items
already in progress.
- In Australia, we are a key partner to the Commonwealth in
the delivery of its National Defence Strategy, which seeks a strategy of
denial and an integrated, focused force. AUKUS nuclear-powered submarines, an
enhanced lethality surface fleet, strategic surveillance and long-range strike
are prioritised in the Integrated Investment Plan which supports this.
- We will continue to work alongside ASC Pty Ltd to deliver
initial mobilisation activities to support Australia's SSN-AUKUS submarines
programme.
Segmental performance: Cyber & Intelligence
Cyber & Intelligence, with 10,500(1) employees, comprises our US‑based
Intelligence & Security business and UK‑headquartered Digital
Intelligence business and covers the Group's cyber security activities for
national security, central government and government enterprises.
Financial performance
Financial performance measures defined by Group(2) Financial performance measures derived from IFRS
2025 2024 Variance(3) 2025 2024 Variance(3)
Sales £2,397m £2,411m +2 % Revenue £2,397m £2,411m -1 %
Underlying EBIT £223m £199m +15 % Operating profit £182m £182m - %
Return on sales 9.3 % 8.3 % +100 bps Return on revenue 7.6 % 7.5 % +10 bps
Operating business cash flow £59m £139m £(80)m Cash flow from operating activities £115m £194m £(79)m
Order intake £2.7bn £2.4bn £0.3bn
Order backlog £2.1bn £1.8bn £0.3bn Order book £1.4bn £1.3bn £0.1bn
- The Cyber & Intelligence segment recorded £2.7bn of new
orders.
- Sales grew by 2%(3), predominantly related to counter-UAS
sales in our Digital Intelligence business following the acquisition of
Kirintec in the prior year.
- Underlying EBIT of £223m reflected an increased return on
sales of 9.3%.
1. Including share of equity accounted investments.
2. The definition and purpose of all performance measures
defined by the Group are provided in the Alternative performance measures
section on page 40.
3. Growth rates for sales and underlying EBIT are on a
constant currency basis. All other growth rates and year-on-year movements are
on a reported currency basis.
Operational performance
Our US-based Intelligence & Security business delivered solid performance
amid shifting US Government priorities, an increasingly competitive defence
technology landscape, as well as furloughs on some programmes due to the US
Government shutdown. Despite these headwinds, we continued to align closely
with evolving customer requirements and national security priorities to drive
faster, more cost-effective and resilient outcomes for our customers.
In our UK-based Digital Intelligence business, we continue to work
collaboratively to collect, connect and understand complex data for
governments, nation states, armed forces and commercial businesses in both the
UK and international markets.
Key operational points for the year
- Our Intelligence & Security business brought together
Bohemia Interactive Simulations, TerraSim and Pitch Technologies to launch BAE
Systems OneArc, a commercial defence technology business focused on delivering
synthetic environments to transform modern battlespace simulation.
- We are using OneArc's VBS4 platform to develop an AI-enabled
embedded training capability for the Bradley Fighting Vehicle that integrates
virtual and real-world systems to improve readiness, reduce costs and advance
the US armed forces' digital modernisation goals.
- Our Intelligence & Security business also launched its
Velhawk zero-trust cyber security solution to provide customers cyber
resilience, accelerated cyber response and optimised working efficiency.
- We continue to expand our presence on the Instrumentation
Range Support Program, providing support to dozens of ranges for the US Army,
Navy, Air Force, Space Force, Department of Energy, NASA and various
international ranges.
- In our Digital Intelligence business, we achieved the
successful launch of our first low earth orbit satellite cluster, Azalea, at
the end of November. This capability will provide defence, national security
and civil sectors with sovereign space-based intelligence, surveillance and
reconnaissance to enhance decision-making around today's threats.
- In our National Security & Government division, we
focused on mobilising new frameworks secured in 2024. Our Defence division
continues to progress campaigns for key programmes and secured an important
international order for assessment of core C4 capability for a sovereign
client.
- Following the acquisition of Kirintec in 2024, we continued
to identify opportunities to exploit our electronic warfare and counter-UAS
products alongside other complementary capabilities within our Digital
Intelligence business and the wider Group. Kirintec specialises in cyber and
electromagnetic activities, counter-improvised explosive devices and
counter-UAS products for military customers.
Strategic and order highlights
- Our Air and Space Force Solutions business was awarded a
$238m (£180m) Systems Engineering and Evaluation, Systems Analysis Worldwide
VIII contract, continuing our 28-year legacy on the programme.
- Our Integrated Defense Solutions team grew the Strategic
Systems Program by more than 20% year-on-year in support of the submarine
nuclear deterrence mission. The team was selected to provide weapon systems
engineering and integration services for the nuclear armed Sea-Launched Cruise
Missile programme and completed weapon system integration activities on the
Columbia and Dreadnought submarine construction programmes.
Looking forward
- Our Intelligence & Security business maintains a
pipeline of qualified business opportunities aligned to current US Government
priorities.
- We seek to accelerate growth by using AI, automation and
autonomy to modernise offerings in digital labour, counter-UAS and UAS,
decision advantage and platform digitisation.
- In our UK Digital Intelligence business, we continue to
progress our transformation roadmap to ensure we are well placed to take
advantage of more favourable conditions in the medium to long term resulting
from anticipated increases in defence spending across our existing and target
markets. We are continuing to drive operational efficiencies through system
integration and the simplified organisational structure embedded at the
beginning of the year.
- In our UK Digital Intelligence business, investment in our
product portfolio continues with good progress made on developing cross-domain
products for the US and other international markets, low earth orbit
satellites and multi-domain network solutions for the defence market.
- Through Kirintec, we will continue to identify opportunities
for our counter-UAS products and complimentary capabilities for military
customers.
Consolidated income statement
for the year ended 31 December
£m
2025 2024
Note £m Total
£m Total
£m
Continuing operations
Revenue 2 28,336 26,312
Operating costs (25,838 ) (24,106 )
Other income 233 266
Share of results of equity accounted investments 194 213
Operating profit 2 2,925 2,685
Finance income 135 135
Finance costs (488 ) (488 )
Net finance costs 3 (353 ) (353 )
Profit before tax 2,572 2,332
Tax expense 4 (421 ) (291 )
Profit for the year 2,151 2,041
Attributable to:
Equity shareholders 2,062 1,956
Non-controlling interests 89 85
2,151 2,041
Earnings per share 5
Basic earnings per share 68.8p 64.9p
Diluted earnings per share 68.0p 64.1p
Consolidated statement of comprehensive income
for the year ended 31 December
2025 2024
Other Retained Total Other Retained Total
reserves earnings reserves earnings
£m £m £m £m £m £m
Profit for the year - 2,151 2,151 - 2,041 2,041
Other comprehensive income
Items that will not be reclassified to the income statement:
Consolidated:
Remeasurements on post-employment benefit schemes - (7 ) (7 ) - 414 414
Remeasurements on other investments - 12 12 - - -
Tax on items that will not be reclassified to the income statement - (28 ) (28 ) - (25 ) (25 )
Share of the other comprehensive (expense)/income of associates and joint - (3 ) (3 ) - 15 15
ventures accounted for using the equity method (net of tax)
Items that may be reclassified to the income statement:
Consolidated:
Currency translation on foreign currency net investments (608 ) - (608 ) 4 - 4
Reclassification of cumulative currency translation reserve on divestment of 21 - 21 3 - 3
interest in equity accounted investments and other business disposals
Fair value gain/(loss) arising on hedging instruments during the year 44 - 44 (36 ) - (36 )
Cumulative fair value loss on hedging instruments reclassified to the income 11 - 11 69 - 69
statement
Tax on items that may be reclassified to the income statement (6 ) - (6 ) (7 ) - (7 )
Share of the other comprehensive (expense)/income of associates and joint (6 ) - (6 ) 4 - 4
ventures accounted for using the equity method (net of tax)
Total other comprehensive (expense)/income for the year (net of tax) (544 ) (26 ) (570 ) 37 404 441
Total comprehensive (expense)/income for the year (544 ) 2,125 1,581 37 2,445 2,482
Attributable to:
Equity shareholders (536 ) 2,038 1,502 38 2,357 2,395
Non-controlling interests (8 ) 87 79 (1 ) 88 87
(544 ) 2,125 1,581 37 2,445 2,482
Consolidated statement of changes in equity
for the year ended 31 December
Attributable to equity holders of BAE Systems plc
Issued share capital Share Other Retained Total Non-controlling Total
premium reserves earnings interests equity
£m £m £m £m £m £m £m
At 1 January 2024 81 1,253 6,403 2,822 10,559 164 10,723
Profit for the year - - - 1,956 1,956 85 2,041
Total other comprehensive income for the year - - 38 401 439 2 441
Total comprehensive income for the year - - 38 2,357 2,395 87 2,482
Share-based payments (inclusive of tax) - - - 145 145 - 145
Cumulative fair value loss on hedging instruments transferred to the balance - - 5 - 5 - 5
sheet
Ordinary share dividends - - - (937 ) (937 ) (90 ) (1,027 )
Purchase of own shares (1 ) - 1 (551 ) (551 ) - (551 )
At 31 December 2024 80 1,253 6,447 3,836 11,616 161 11,777
Profit for the year - - - 2,062 2,062 89 2,151
Total other comprehensive expense for the year - - (536 ) (24 ) (560 ) (10 ) (570 )
Total comprehensive (expense)/income for the year - - (536 ) 2,038 1,502 79 1,581
Share-based payments (inclusive of tax) - - - 226 226 - 226
Cumulative fair value gain on hedging instruments transferred to the balance - - (31 ) - (31 ) - (31 )
sheet
Ordinary share dividends - - - (1,027 ) (1,027 ) (87 ) (1,114 )
Purchase of own shares (1 ) - 1 (502 ) (502 ) - (502 )
At 31 December 2025 79 1,253 5,881 4,571 11,784 153 11,937
Consolidated balance sheet
as at 31 December
Note 2025 2024
£m £m
Non-current assets
Goodwill 12,732 13,297
Other intangible assets 2,513 2,965
Property, plant and equipment 5,160 4,843
Right-of-use assets 1,638 1,755
Investment property 37 38
Equity accounted investments 698 823
Other investments 124 83
Contract receivables 117 108
Other receivables 859 626
Post-employment benefit surpluses 6 1,250 1,271
Other financial assets 232 265
Deferred tax assets 172 315
25,532 26,389
Current assets
Inventories 1,384 1,324
Contract receivables 3,834 3,749
Trade and other receivables 3,125 2,914
Current tax 183 176
Other financial assets 183 212
Cash and cash equivalents 3,438 3,378
12,147 11,753
Total assets 37,679 38,142
Non-current liabilities
Loans (7,190 ) (7,713 )
Lease liabilities (1,513 ) (1,658 )
Contract liabilities (1,746 ) (1,720 )
Other payables (1,921 ) (1,859 )
Post-employment benefit obligations 6 (406 ) (503 )
Other financial liabilities (248 ) (193 )
Deferred tax liabilities (26 ) (14 )
Provisions (389 ) (363 )
(13,439 ) (14,023 )
Current liabilities
Loans (95 ) (699 )
Lease liabilities (253 ) (183 )
Contract liabilities (4,820 ) (4,504 )
Trade and other payables (6,686 ) (6,383 )
Other financial liabilities (173 ) (264 )
Current tax (44 ) (55 )
Provisions (232 ) (254 )
(12,303 ) (12,342 )
Total liabilities (25,742 ) (26,365 )
Net assets 11,937 11,777
Capital and reserves
Issued share capital 79 80
Share premium 1,253 1,253
Other reserves 5,881 6,447
Retained earnings 4,571 3,836
Total equity attributable to equity holders of BAE Systems plc 11,784 11,616
Non-controlling interests 153 161
Total equity 11,937 11,777
Approved by the Board of directors of BAE Systems plc on 17 February 2026 and
signed on its behalf by:
C N Woodburn B M Greve
Chief Executive Chief Financial Officer
Consolidated cash flow statement
for the year ended 31 December
Note 2025 2024
£m £m
Profit for the year 2,151 2,041
Tax expense 4 421 291
Adjustment in respect of research and development expenditure credits (59 ) (45 )
Share of results of equity accounted investments (194 ) (213 )
Net finance costs 3 353 353
Depreciation, amortisation and impairment 1,173 1,097
Net loss on disposal of property, plant and equipment, and investment property - 6
Gain in respect of divestment of interests in equity accounted investments and 11 (12 ) (94 )
other business disposals
Cost of equity-settled employee share schemes 174 144
Movement in provisions 16 24
Difference between pension funding contributions paid and the pension charge (50 ) (249 )
(Increase)/decrease in working capital:
Inventories (110 ) (144 )
Trade, contract and other receivables (723 ) (121 )
Trade and other payables, and contract liabilities 488 1,010
Tax paid net of research and development expenditure credits received (196 ) (175 )
Net cash flow from operating activities 3,432 3,925
Dividends received from equity accounted investments 299 158
Interest received 79 130
Principal element of finance lease receipts 6 12
Purchase of property, plant and equipment, and investment property (920 ) (990 )
Purchase of intangible assets (183 ) (173 )
Purchase of other investments (2 ) -
Proceeds from funding related to assets 122 153
Equity accounted investment funding (1 ) -
Proceeds from sale of property, plant and equipment, investment property and 25 23
intangible assets
Purchase of subsidiary undertakings, net of cash and cash equivalents acquired 10 (8 ) (4,776 )
Cash flow in respect of divestment of interests in equity accounted 11 42 194
investments and other business disposals
Net cash flow from investing activities (541 ) (5,269 )
Interest paid (512 ) (543 )
Equity dividends paid 7 (1,027 ) (937 )
Purchase of own shares (502 ) (555 )
Dividends paid to non-controlling interests (86 ) (89 )
Principal element of lease payments (187 ) (190 )
Cash inflow from derivative financial instruments (excluding cash flow hedges) 419 136
Cash outflow from derivative financial instruments (excluding cash flow (317 ) (266 )
hedges)
Cash inflow from bond finance - 3,753
Cash outflow from repayment of bond finance (562 ) (626 )
Cash inflow from draw-down of bridge loan facility - 3,180
Cash outflow from repayment of bridge loan facility - (3,168 )
Net cash flow from financing activities (2,774 ) 695
Net increase/(decrease) in cash and cash equivalents 117 (649 )
Cash and cash equivalents at 1 January 3,378 4,067
Effect of foreign exchange rate changes on cash and cash equivalents (57 ) (40 )
Cash and cash equivalents at 31 December 3,438 3,378
Notes to the accounts
1. Preparation of the Condensed consolidated financial statements
Basis of preparation and statement of compliance
The Consolidated financial statements of BAE Systems plc for the year ended
31 December 2025, which were approved by the Board of directors on
17 February 2026, have been prepared on a going concern basis and in
accordance with UK-adopted international accounting standards and the
Companies Act 2006.
These condensed consolidated financial statements do not comprise statutory
accounts within the meaning of Section 434 of the Companies Act 2006 but have
been derived from the statutory accounts for the year ended 31 December 2025.
These statutory accounts have been audited and will be delivered to the
Registrar of Companies in accordance with Section 441 of the Companies Act
2006 in due course.
The comparative figures for the year ended 31 December 2024 are not the
Group's statutory accounts for that financial year. Those statutory accounts
have been reported upon by the Group's auditor and delivered to the Registrar
of Companies. The reports of the auditor in relation to the statutory accounts
for the years ended 31 December 2025 and 31 December 2024 are unmodified,
did not include a reference to any matters to which the auditor drew attention
by way of emphasis without modifying its report and did not contain statements
under Section 498(2) or (3) of the Companies Act 2006.
The Consolidated financial statements are presented in pounds sterling and,
unless stated otherwise, rounded to the nearest million. They have been
prepared under the historical cost convention, as modified by the revaluation
of certain financial assets and financial liabilities (including derivative
financial instruments).
Changes in accounting policies
The following standards, interpretations and amendments to existing standards
have been issued but were not mandatory for accounting periods beginning on
1 January 2025. These either have been, or are expected to be, endorsed by
the UK Endorsement Board and are not expected to have a material impact on the
Group:
- Amendments to IFRS 9 and IFRS 7: Amendments to the
Classification and Measurement of Financial Instruments, effective from 1
January 2026;
- Amendments to IFRS 9 and IFRS 7: Contracts Referencing
Nature-dependent Electricity, effective from 1 January 2026;
- Annual Improvements to IFRS Accounting Standards - Volume
11, effective from 1 January 2026; and
- IFRS 19 Subsidiaries without Public Accountability:
Disclosures, effective from 1 January 2027.
The following new standard has been endorsed by the UK Endorsement Board and
is expected to have a material impact to the presentation of the Consolidated
financial statements:
- IFRS 18 Presentation and Disclosure in Financial Statements,
effective from 1 January 2027. This is a presentational standard and the Group
is working through the impact, with the main changes to the Group expected to
be the requirement to disaggregate information reported in the Consolidated
income statement and the reporting of Management-defined Performance Measures
in the notes to the Consolidated financial statements.
Key sources of estimation uncertainty
The application of the Group's accounting policies requires the use of
estimates. In response to the potential impact of risks and uncertainties, the
Group undertakes risk assessments and scenario planning in order to be able to
respond to potential rapid changes in circumstances. The Group considers a
range of estimates and assumptions in the application of its accounting
policies and management's assessment of the carrying value of assets and
liabilities. In the event that these estimates or assumptions prove to be
inaccurate, there may be an adjustment to the carrying values of assets and
liabilities within the next year. Areas of the Group's financial statements
which could be materially impacted may include, but are not limited to:
Revenue and profit recognition
The Group accounts for revenue in accordance with IFRS 15 Revenue from
Contracts with Customers. For most of the Group's contracts, revenue and
associated margin are recognised progressively over time as costs are
incurred, and as risks have been mitigated or retired.
The ultimate profitability of contracts is based on estimates of revenue and
costs, including allowances for technical and other risks which are reliant on
the knowledge and experience of the Group's project managers, engineers, and
finance and commercial professionals. Material changes in these estimates
could affect the profitability of individual contracts. Revenue and cost
estimates are reviewed and updated at least quarterly, or more frequently as
determined by events or circumstances.
The long-term nature of many of the Group's contracts means that judgements
are made in estimating future costs on a contract, as well as when risks will
be mitigated or retired. The Group continues to work closely and
collaboratively with its key customers to deliver effectively on its contracts
and commitments. However, the volume, scale, complexity and long-term nature
of its programmes mean that potential sensitivities would be wide-ranging and
not practicable to calculate. Owing to the potential future impact of current
uncertainties, the Group's estimates and assumptions related to revenue
recognition could be impacted by issues such as reduced productivity as a
result of operational disruption, production delays and increased costs as a
result of disruption to the supply chain, changing working practices to move
towards our decarbonisation ambitions or, where there is uncertainty as to the
recovery from customers, of programme costs incurred.
Revenue and profit is recognised only to the extent that it is highly probable
that there will not be a reversal of revenue in the future. Therefore, in any
given reporting year, the Group would expect to recognise an amount of revenue
that did not meet the highly probable threshold at the end of the previous
reporting year, but subsequently became highly probable in the current
reporting year. Accordingly, the Group has recognised £0.2bn (2024 £0.2bn)
of revenue in respect of performance obligations satisfied or partially
satisfied in previous years. This continues to provide an approximation of the
potential revenue sensitivity arising as a result of management's estimates
and assumptions for variable consideration, future costs, and technical and
other risks; however, it may not reflect the full potential impact on the
contract receivables and contract liabilities balances.
Post-employment benefit obligations
A number of actuarial assumptions are made in assessing the value of
post-employment benefit obligations, including the discount rate, inflation
rate and mortality assumptions. For each of the actuarial assumptions used,
there is a wide range of possible values and management estimates a point
within that range that most appropriately reflects the Group's circumstances.
If estimates relating to these actuarial assumptions are no longer valid, or
change due to changing economic and social conditions, then the potential
obligations due under these schemes could change significantly.
Discount and inflation rates could change significantly as a result of a
prolonged economic downturn, monetary policy decisions and interventions or
other macroeconomic issues. Estimates made with regard to mortality
projections may also change based on medical and epidemiological developments.
Similarly, the values of many assets are subject to estimates and assumptions,
in particular those which are held in unquoted pooled investment vehicles. The
associated fair value of these unquoted pooled investments is estimated with
consideration of the most recently available valuations provided by the
investment or fund managers. These valuations inherently incorporate a number
of assumptions on the underlying investments. The overall level of estimation
uncertainty in valuing these assets could therefore give rise to a material
change in valuation within the next 12 months.
Furthermore, estimates are required around the Group's ability to access its
defined benefit surpluses, and on what basis, which then determines the
associated rate of tax to apply. Depending on the outcome, judgement is then
required to determine the presentation of any tax payable in recovering a
surplus.
Critical judgements made in applying accounting policies
In the course of preparing the Consolidated financial statements and when
applying its accounting policies, the Group has been required to make
judgements with regard to the actions required to enable the business to
continue to meet customers' requirements in an operating environment still
dominated by global economic uncertainties. No critical judgements have been
made in the process of applying the Group's accounting policies, other than
those involving estimates, that have had a significant effect on the amounts
recognised in the Consolidated financial statements.
Impact of climate on the Consolidated financial statements
In preparing the Consolidated financial statements management has considered
the potential impact of climate change, both in the context of the disclosures
included in the Strategic report, and the impact of climate-related risks and
opportunities and the Group's decarbonisation ambitions and activities on the
Group's financial results.
As a responsible defence business, sustainability is embedded in our strategic
framework, with one of the Group's long-term objectives to advance and
integrate our ESG agenda. The products and services we provide are complex,
diverse and developed over extended periods of time. Sustainability and the
impact of our operations is considered in the planning and ongoing production
of our products and services, including incorporation of the impact of the
Group's decarbonisation ambitions and activities. These are embedded in our
financial reporting, forecasting and governance processes.
Estimates and judgement are required in determining how the Group will pursue
its decarbonisation ambitions. These, as well as mitigating actions required
from the detailed review of climate risks and opportunities, have been
factored into the current and future plans of the Group through the Integrated
Business Plan (IBP). The IBP is the Group's annual long-term strategy review
and five-year plan for each segment, including the investment case to
decarbonise.
The more immediate financial impacts of climate-related risks, and the actions
being taken to address them, are reflected in the financial results of the
Group for the year. These are not considered to have had a material impact.
2. Segmental analysis and revenue recognition
The Group has five sectors which, together with HQ, make up its six reporting
segments as defined by IFRS 8 Operating Segments.
- Electronic Systems comprises the US- and UK-based
electronics solutions business and the US-based SMS business, which have been
aggregated together due to the similarities of the services offered. Together
the teams deliver electronic warfare systems, navigation systems,
electro-optical sensors, military and commercial avionics, precision guided
solutions and communications systems, as well as space electronics,
spacecraft, and ground and tactical systems.
- Platforms & Services, with operations in the US, Sweden
and UK, manufactures and upgrades combat vehicles, weapons and munitions,
and delivers services and sustainment activities, including naval ship
repair, and the management and operation of two government-owned
contractor-operated ammunition plants.
- Air comprises the Group's UK‑based aircraft build and
support activities for European and international markets, US programmes,
development of our Future Combat Air System and FalconWorks®, alongside our
business in the Kingdom of Saudi Arabia and interests in our joint ventures:
Edgewing, Eurofighter and MBDA.
- Maritime comprises our UK‑based maritime and land
activities, including ship build and support activities, major submarine build
programmes, as well as our Australian business and interest in our RBSL joint
venture.
- Cyber & Intelligence comprises the US-based Intelligence
& Security business and UK-headquartered Digital Intelligence business,
which have been aggregated together due to the similarities of the services
offered. Together, they cover the Group's cyber security activities for
national security, central government and government enterprises.
- HQ comprises the Group's head office and UK-based shared
services activities.
The Board (the chief operating decision maker as defined by IFRS 8 Operating
Segments) monitors the results of these reporting segments to assess
performance and make decisions about the allocation of resources. Segmental
performance is evaluated based on key performance indicators - sales(1) and
underlying EBIT(2). Net finance costs and tax expense are managed on a Group
basis.
Revenue and sales(1) by reporting segment
Revenue Deduct: Sales to equity accounted investments Add back: Share of sales by equity accounted investments Sales(1)
2025 2024 2025 2024 2025 2024 2025 2024
£m £m £m £m £m £m £m £m
Electronic Systems 7,507 7,186 (251 ) (258 ) 272 261 7,528 7,189
Platforms & Services 5,021 4,344 - - 18 46 5,039 4,390
Air 7,372 6,880 (1,574 ) (1,413 ) 3,501 3,052 9,299 8,519
Maritime 6,579 6,002 (5 ) (6 ) 223 191 6,797 6,187
Cyber & Intelligence 2,397 2,411 - - - - 2,397 2,411
HQ 52 24 - - 180 179 232 203
28,928 26,847 (1,830 ) (1,677 ) 4,194 3,729 31,292 28,899
Intra-group revenue/sales(1) (592 ) (535 ) (38 ) (29 ) - - (630 ) (564 )
28,336 26,312 (1,868 ) (1,706 ) 4,194 3,729 30,662 28,335
Revenue from Intra-group revenue
external customers
2025 2024 2025 2024
£m £m £m £m
Electronic Systems 7,310 6,988 197 198
Platforms & Services 4,948 4,288 73 56
Air 7,318 6,840 54 40
Maritime 6,507 5,915 72 87
Cyber & Intelligence 2,245 2,271 152 140
HQ 8 10 44 14
28,336 26,312 592 535
Revenue and sales(1) by customer location
Revenue Sales(1)
2025 2024 2025 2024
£m £m £m £m
UK 7,876 7,039 8,349 7,439
Europe (excluding UK) 2,221 1,733 3,634 2,842
US 13,145 12,559 13,157 12,536
Canada 227 189 227 189
Kingdom of Saudi Arabia 2,838 2,892 2,843 2,962
Qatar 252 259 332 468
Australia 1,287 1,158 1,293 1,170
Asia and Pacific (excluding Australia) 358 354 499 455
Other 132 129 328 274
28,336 26,312 30,662 28,335
Operating profit/(loss) by reporting segment
Operating Finance and tax expense/(income) of equity accounted investments Amortisation of Adjusting Items Underlying EBIT(2)
profit/(loss) programme, customer-related
and other intangible
assets, and impairment
of equity accounted
investments and
intangible assets
2025 2024 2025 2024 2025 2024 2025 2024 2025 2024
£m £m £m £m £m £m £m £m £m £m
Electronic Systems 863 708 - - 337 307 (38 ) 56 1,162 1,071
Platforms & Services 576 456 - 9 - - - (17 ) 576 448
Air 1,078 1,009 14 (14 ) 16 10 - 2 1,108 1,007
Maritime 431 465 4 4 22 5 - - 457 474
Cyber & Intelligence 182 182 - - 39 22 2 (5 ) 223 199
HQ (205 ) (135 ) 5 10 - - (4 ) (59 ) (204 ) (184 )
2,925 2,685 23 9 414 344 (40 ) (23 ) 3,322 3,015
Net finance costs (353 ) (353 )
Profit before tax 2,572 2,332
Tax expense (421 ) (291 )
Profit for the year 2,151 2,041
1. Sales is an alternative performance measure defined in the
Alternative performance measures section on page 40. Sales includes revenue
from the Group's subsidiaries as well as the Group's share of revenue of
equity accounted investments, recognising the strategic importance in its
industry of its equity accounted investments. It is presented here as our
internal measure of segmental performance and to provide additional
information on performance to the user.
2. Underlying EBIT is an alternative performance measure
defined in the Alternative performance measures section on page 40. It
provides a measure of operating profitability, excluding one-off events or
adjusting items that are not considered to be part of the ongoing operational
transactions of the business, to enable management to monitor the performance
of recurring operations over time, and which is comparable across the Group.
It is presented here as our internal measure of segmental performance and to
provide additional information on performance to the user.
3. Net finance costs
2025 2024
£m £m
Interest income on cash and other financial instruments 80 116
Interest income on finance lease receivables 1 1
Net interest income on post-employment benefit obligations 54 18
Finance income 135 135
Interest expense on loans and other financial instruments (425 ) (482 )
Facility fees (4 ) (4 )
Interest expense on lease liabilities (79 ) (73 )
Net present value expenses on provisions and other payables (15 ) (13 )
Gain/(loss) on remeasurement of financial instruments at fair value through 45 (6 )
profit or loss(1,2)
Foreign exchange (losses)/gains(2,3) (10 ) 90
Finance costs (488 ) (488 )
Net finance costs (353 ) (353 )
1. Comprises gains and losses on derivative financial
instruments, principally held to manage the Group's exposure to interest rate
fluctuations on current and anticipated external borrowings and exchange rate
fluctuations on balances with the Group's subsidiaries and equity accounted
investments.
2. The net gain or loss on remeasurement of financial
instruments at fair value through profit or loss and the net gain or loss on
foreign exchange are presented within finance costs as the gains and losses
relate to the same underlying transactions.
3. Foreign exchange (losses)/gains reflects exchange rate
movements on US dollar-denominated borrowings and balances with the Group's
subsidiaries and equity accounted investments.
4. Tax expense
The following table reconciles the theoretical income tax expense, using the
UK corporation tax rate, to the reported tax expense. The reconciling items
represent, besides the impact of tax rate differentials and changes,
non-taxable benefits or non-deductible expenses arising from differences
between the local tax base and the reported financial statements.
2025 2024
£m £m
Profit before tax 2,572 2,332
UK corporation tax rate 25.0 % 25.0 %
Expected income tax expense (643 ) (583 )
Effect of tax rates in foreign jurisdictions, including US state taxes (1 ) 3
Expenses not tax effected (16 ) (12 )
Income not subject to tax 122 162
Research and development tax credits 29 38
Adjustments in respect of prior years 31 72
Adjustments in respect of equity accounted investments 52 55
Tax rate adjustment - -
Other 5 (26 )
Tax expense (421 ) (291 )
5. Earnings per share
Movement in shares for the purpose of calculating earnings per share Ordinary shares Treasury shares Contingently returnable shares held in trust Outstanding shares for purpose of earnings per share Weighted average share movement in the year
millions millions millions millions mi
ll
io
ns
At 1 January 2024 3,239 (204 ) (20 ) 3,015
Ordinary shares repurchased in the year (44 ) - - (44 ) (20 )
Net shares issued in the year - 20 5 25 18
At 31 December 2024 3,195 (184 ) (15 ) 2,996
Ordinary shares repurchased in the year (29 ) - - (29 ) (15 )
Net shares issued in the year - 19 2 21 16
At 31 December 2025 3,166 (165 ) (13 ) 2,988
2025 2024
Number of shares Number of shares
millions millions
Outstanding shares for purpose of earnings per share at 1 January 2,996 3,015
Average ordinary shares repurchased in the year (15 ) (20 )
Average ordinary shares issued in the year (net) 16 18
Weighted average shares for the purpose of calculating basic earnings per 2,997 3,013
share at 31 December
Incremental ordinary shares in respect of employee share schemes 34 40
Weighted average shares for the purpose of calculating diluted earnings per 3,031 3,053
share at 31 December
2025 2024
Profit for the year attributable to equity shareholders (£m) 2,062 1,956
Basic earnings per share (pence) 68.8 64.9
Diluted earnings per share (pence) 68.0 64.1
6. Post-employment benefits
Introduction
The majority of the UK and US defined benefit pension schemes are funded by
the Group's subsidiaries and equity accounted investments. The individual
pension schemes' funding requirements are based on actuarial measurement
frameworks set out in their funding policies.
The funding valuations are performed by professionally qualified independent
actuaries and include assumptions which differ from the actuarial assumptions
used for IAS 19 accounting purposes shown below. The purpose of the funding
valuations is to design funding plans which ensure that the schemes have
sufficient funds available to meet future benefit payments.
UK valuations
Funding valuations of the Group's UK defined benefit pension schemes are
performed at least every three years. The most recent triennial funding
valuation for the Main Scheme was carried out as at 31 March 2024. This
valuation was concluded and signed off on 6 February 2025.
The results of the most recent triennial valuation for the Main Scheme are
shown below. This valuation was agreed with the Trustees and certified by the
Scheme Actuary after consultation with the Pensions Regulator in the UK.
Main Scheme as at 31 March 2024
£bn
Market value of assets 19.2
Present value of liabilities (18.4 )
Funding surplus 0.8
Percentage of accrued benefits covered by the assets at the valuation date 104 %
The other UK schemes were also in surplus at their most recent triennial
valuations.
US valuations
The Group's US pension schemes are valued annually, with the latest valuations
performed as at 1 January 2025. The actuarial present value of accumulated
plan benefits is determined by an independent actuary and uses actuarial
assumptions to adjust the accumulated plan benefits earned by participants to
reflect the time value of money and the probability of payment between the
valuation date and the expected date
of payment.
Contributions
Under the terms of the trust deeds of the UK schemes, the Group is required to
have a funding plan determined at the conclusion of the triennial funding
valuations. Equity accounted investments make regular contributions to the
schemes in which they participate in line with the schedule of contributions.
Contributions in 2026 to the Group's pension schemes are expected to be
approximately £90m, at a lower level than 2025, primarily reflecting the
impact of updated market conditions on the cost of benefit accrual.
IAS 19 accounting
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
2025 2024 2023 2025 2024 2023
Financial assumptions
Discount rate - past service (%) 5.5 5.5 4.5 5.2 5.5 4.8
Discount rate - future service (%) 5.8 5.6 4.6 5.2 5.5 4.8
Discount rate - US Healthcare schemes (%) n/a n/a n/a 5.2 5.5 4.8
Retail Prices Index (RPI) inflation (%) 2.5 2.9 2.8 n/a n/a n/a
Rate of increase in salaries (%) 2.5 2.9 2.8 2.8 2.8 n/a
Rate of increase in deferred pensions (CPI/RPI) (%) 2.0/2.5 2.3/2.9 2.1/2.8 n/a n/a n/a
Rate of increase in pensions in payment (%) 1.6 - 3.5 1.7 - 3.6 1.6 - 3.6 n/a n/a n/a
Demographic assumptions
Life expectancy of a male currently aged 65 (years) 86 - 89 85 - 88 85 - 89 88 88 88
Life expectancy of a female currently aged 65 (years) 88 - 91 88 - 91 88 - 89 89 89 89
Life expectancy of a male currently aged 45 (years) 87 - 90 86 - 89 86 - 89 87 87 87
Life expectancy of a female currently aged 45 (years) 89 - 92 89 - 92 89 - 90 89 89 89
Life expectancy
For its UK pension schemes, the Group has used the Self-Administered Pension
Schemes S3 mortality tables based on year of birth (as published by the
Institute and Faculty of Actuaries) for both pensioner and non-pensioner
members, in conjunction with the results of an investigation into the actual
mortality experience of scheme members and information on the demographic
profile of the scheme's membership.
In addition, to allow for future improvements in longevity, the Continuous
Mortality Investigation 2024 tables (published by the Institute and Faculty of
Actuaries) have been used (in 2024, the 2023 version of the tables were used),
with an assumed long-term rate of improvement of 1.0% per annum (2024 1.0%),
an initial rate adjustment parameter ('A') of 0.2% (2024 0.2%), with both the
age-period and cohort convergence periods equal to the core values, except
increased to 20 years from ages 80 to 100, and then tapering down to nil by
age 120.
For the majority of the US schemes, the mortality tables used at 31 December
2025 are a blend of the fully generational PRI-2012 White Collar table and the
PRI-2012 Blue Collar table, both projected using November 2025 Aon Endemic
Projection Scale MP-2021.
Amounts recognised on the balance sheet
UK US and other pension schemes US healthcare schemes Kingdom Total
defined benefit pension schemes of Saudi Arabia end of service
benefit
£m £m £m £m £m
Post-employment benefit surpluses 1,214 3 33 - 1,250
Post-employment benefit obligations (89 ) (122 ) - (195 ) (406 )
At 31 December 2025 1,125 (119 ) 33 (195 ) 844
Summary of movements in post-employment benefit obligations
UK defined benefit pension schemes US and other pension schemes US healthcare schemes Kingdom of Saudi Arabia end of service Total
benefit
£m £m £m £m £m
Surplus/(deficit) at 1 January 2025 1,105 (230 ) 71 (178 ) 768
Actual return on assets excluding amounts included in net finance costs (424 ) 147 3 - (274 )
Decrease/(increase) in liabilities due to changes in financial assumptions 384 (57 ) (3 ) (5 ) 319
Increase in liabilities due to changes in demographic assumptions (118 ) (1 ) - - (119 )
Experience gains/(losses) 53 (3 ) 1 (2 ) 49
Contributions in excess of/(below) service cost 44 (27 ) (2 ) (10 ) 5
Past service (cost)/credit - plan amendments (7 ) 58 - - 51
Transfer to employee benefit trust(1) - - (34 ) - (34 )
Net interest income/(expense) 92 (10 ) 3 (9 ) 76
Foreign exchange adjustments - 4 (6 ) 9 7
Movement in withholding tax on surpluses (4 ) - - - (4 )
Surplus/(deficit) at 31 December 2025 1,125 (119 ) 33 (195 ) 844
1. Healthcare plan assets utilised to provide medical benefits
for active members.
Curtailment gain
In August 2025, the SMS pension scheme was modified to align with industry and
other US schemes. The amendment resulted in a one-off gain of £58m which has
been recognised in the Consolidated income statement.
Surplus recognition
A number of schemes are in an accounting surplus position. The surpluses have
been recognised on the basis that the future economic benefits are
unconditionally available to the Group, which is assumed to be via a refund.
The UK surplus has been recognised net of withholding tax of 25% 31 December
2025 (2024 25%) based on the enacted legislation at that date. This tax would
be levied prior to the future refunding of any surplus, and therefore the
surplus has been presented on a net basis as this is not deemed to be an
income tax of the Group.
7. Capital distributions
Equity dividends
2025 2024
£m £m
Final 20.6p dividend per ordinary share paid in the year (2024 18.5p) 622 562
Interim 13.5p dividend per ordinary share paid in the year (2024 12.4p) 405 375
1,027 937
After the balance sheet date, the directors proposed a final dividend of 22.8p
per ordinary share. The dividend proposed amounts to approximately £684m,
although the final payment is likely to be lower as a result of the impact of
share repurchases. Subject to shareholder approval, the dividend will be paid
on 4 June 2026 to shareholders registered on 24 April 2026. The provisional
ex-dividend date is 23 April 2026. The payment of this dividend will not have
any tax expense consequences for the Group.
Purchase of own shares
In July 2022, the directors approved a share buyback programme of up to
£1.5bn (the 2022 share buyback programme). The 2022 share buyback programme
was completed on 24 July 2024. In total, 163,907,003 ordinary shares were
repurchased under the 2022 share buyback programme for a total cost (including
transaction costs) of £1,508m.
In August 2023, the directors approved a further share buyback programme of up
to £1.5bn (the 2023 share buyback programme). The 2023 share buyback
programme commenced on 25 July 2024. The 2023 share buyback programme is
expected to complete within three years of
its commencement.
In the year ended 31 December 2024, 22,220,182 ordinary shares were
repurchased under the 2022 share buyback programme for a total
cost
(including transaction costs) of £287m. A further 20,901,154 ordinary shares
were repurchased under the 2023 share buyback programme at a total cost
(including transaction costs) of £264m.
In the year ended 31 December 2025, 29,595,214 ordinary shares were
repurchased under the 2023 share buyback programme at a total cost (including
transaction costs) of £502m.
All ordinary shares acquired have been subsequently cancelled, with the
nominal value of ordinary shares cancelled deducted from share capital against
the capital redemption reserve.
As part of the 2022 and 2023 buyback programmes, it was agreed that should a
better alternative use for the Company's cash reserves be identified, the
share buyback programmes would be ceased and the money instead used for the
alternative purpose. Therefore, when the Company issued a mandate to the
brokers to purchase shares on its behalf, the mandate was structured such that
it could be revoked at any point. As such, no financial liability has been
recognised for shares not yet purchased under the programmes at 31 December.
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 money market funds are calculated by
multiplying the net asset value per share by the investment held at the
balance sheet date.
The derivative fair values are based on reputable third-party forecast data,
and then adjusted for credit risk, including the Group's own credit
risk,
and market risk.
Due to the variability of the valuation factors, the fair values presented at
31 December may not be indicative of the amounts the Group will realise in the
future.
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).
All of the financial assets and liabilities measured at fair value are
classified as level 2 using the fair value hierarchy, except for money market
funds, which are classified as level 1; other investments, which are at a
combination of level 1 and level 3; and the contingent consideration
liability, which is measured at level 3. The fair value of the contingent
consideration has been valued based on the discounted expected cash flows. The
total value of investments classified as level 3 is immaterial. There were no
transfers between levels during the period. Alternative valuation techniques
would not materially change the valuations presented.
Financial assets and liabilities in the Group's Consolidated balance sheet are
either held at fair value or at amortised cost. With the exception of loans,
the carrying value of financial instruments measured at amortised cost
approximates their fair value. For the bonds included within loans, the fair
value of loans presented in the table above is derived from market prices as
of 31 December, classified as level 1 using the fair value hierarchy. The fair
value of the private placement included within loans has been valued based on
the interest yield on an equivalent observable bond, applied to the private
placement cash flows, and has been classified as level 2 using the fair value
hierarchy.
Carrying amounts and fair values of certain financial instruments
2025 2024
Carrying Fair Carrying Fair
amount value amount value
£m £m £m £m
Financial instruments measured at fair value:
Non-current
Other investments at fair value through other comprehensive income 124 124 83 83
Other financial assets 232 232 265 265
Contingent consideration arising from business combinations (40 ) (40 ) (65 ) (65 )
Other financial liabilities (248 ) (248 ) (193 ) (193 )
Current
Other financial assets 183 183 212 212
Money market funds 1,169 1,169 1,227 1,227
Contingent consideration arising from business combinations (18 ) (18 ) (6 ) (6 )
Other financial liabilities (173 ) (173 ) (264 ) (264 )
Financial instruments not measured at fair value:
Non-current
Loans (7,190 ) (6,991 ) (7,713 ) (7,261 )
Current
Loans (95 ) (95 ) (699 ) (695 )
9. Related party transactions
The Group has a related party relationship with its equity accounted
investments and pension schemes. Transactions with related parties occur in
the normal course of business, are priced on an arm's-length basis and settled
on normal trade terms. The more significant transactions are disclosed below:
Year ended 31 December 2025 Year ended 31 December 2024
£m £m
Sales to related parties 1,868 1,706
Purchases from related parties 439 512
Management recharges 3 3
31 December 2025 31 December 2024
£m £m
Amounts owed by related parties 96 54
Amounts owed to related parties(1) 2,414 2,192
1. At 31 December 2025, £2,193m (2024 £1,975m) was owed by
BAE Systems plc and £221m (2024 £217m) by other Group subsidiaries.
10. Acquisitions
Businesses acquired during 2025
There were no material acquisitions during the year.
Businesses acquired during 2024
Ball Aerospace
On 16 February 2024, the Group acquired 100% of the share capital of Ball
Aerospace (now Space & Mission Systems) for consideration of $5.5bn
(£4.4bn). The net assets acquired, including intangible assets identified,
were valued at £2,845m resulting in goodwill of £1,507m.
Kirintec
On 3 September 2024, the Group acquired 100% of the share capital of Kirintec
Ltd for total consideration of £282m, including £30m of contingent
consideration. The net assets acquired, including intangible assets
identified, were provisionally valued at £161m resulting in provisional
goodwill of £121m. The purchase price allocation for the acquisition was
finalised within the current year with no significant changes. The final
goodwill arising on acquisition was valued at £122m.
Other acquisitions
On 31 January 2024, the Group acquired 100% of the share capital of Malloy
Aeronautics Ltd and, on 2 May 2024, the Group acquired 100%
of the share
capital of Callen-Lenz Associates Ltd. Total consideration was £292m
including £61m of contingent consideration. The net assets acquired,
including intangible assets identified, were valued at £108m resulting in
goodwill of £184m at 31 December 2024. Since the 31 December 2024, the Group
has adjusted the net assets acquired with Callen-Lenz Associates Ltd by £16m,
which has resulted in an increase to goodwill. Total goodwill of £200m has
been recognised in respect of these acquisitions.
11. Disposals
Business disposals during 2025
There were no business disposals in 2025.
Disposal of interests in equity accounted investments during 2025
Air Astana
On 17 December 2025, the Group disposed of a portion of its 17% interest in
Air Astana leaving the group with a 7% shareholding at 31 December 2025. The
Group received cash proceeds of £38m and realised a profit on disposal of
£12m, after accounting for the carrying value of the investment, disposal
costs and currency reserve reclassifications. Following the reduction in the
shareholding, the Group is no longer equity accounting for the remaining
investment in Air Astana which is held within other investments, at fair value
through other comprehensive income, at 31 December 2025.
Innovaero
On 11 December 2025, the Group disposed of its 51% shareholding in Innovaero
Pty Ltd, previously reported in the Maritime segment.
The Group received
cash proceeds of £4m, there was no profit or loss on the disposal.
Business disposals during 2024
On 31 October 2024, the Group completed the sale of BAE Systems Imaging
Solutions Inc., previously reported within the Electronic Systems segment and,
on 31 December 2024, the Group completed the sale of its forge facilities and
related services which formed the Anniston business within the Platforms &
Services segment. Total net cash proceeds from the disposals were £8m and,
after accounting for disposal costs and cumulative currency translation, the
loss on the disposals before tax totalled £4m.
Disposal of interests in equity accounted investments during 2024
Air Astana
On 9 February 2024, Air Astana launched a joint initial public offering (IPO).
As a result of the IPO, the total shareholding held by BAE Systems
in Air
Astana reduced from 49% to 17%. The Group received cash proceeds of £166m and
realised a profit on the disposal of £75m, after accounting for the carrying
value of the investment and currency reserve reclassifications.
FNSS
On 10 December 2024, the Group sold its 49% shareholding in FNSS Savunma
Sistemleri A.S,. FNSS was included in the Platforms & Services segment.
The Group received cash proceeds of £20m and realised a profit on the
disposal of £23m, after accounting for currency reserve reclassifications.
12. Contingent liabilities
The Group believes that the likelihood of any significant liability arising in
respect of its guarantees and performance bond arrangements, and legal actions
and claims not already provided for, is remote.
13. Events after the reporting period
There were no events after the reporting period which would materially impact
the balances reported in this Report.
Alternative performance measures
We monitor the underlying financial performance of the Group using APMs. These
measures are not defined in IFRS and, therefore, are considered to be non-GAAP
(Generally Accepted Accounting Principles) measures. Accordingly, the relevant
IFRS measures are also presented where appropriate.
The Group uses these APMs as a mechanism to support year-on-year business
performance and cash generation comparisons, and to enhance management's
planning and decision-making on the allocation of resources. The APMs are also
used to provide information in line with the expectations of investors, and
when setting guidance on expected future business performance. The Group
presents these measures to the users to enhance their understanding of how the
business has performed within the year, and does not consider them to be more
important than, or superior to, their equivalent IFRS measures. As each APM is
defined by the Group, they may not be directly comparable with equivalently
named measures in other companies.
Purpose, definitions, breakdowns and reconciliations to the relevant statutory
measure, where appropriate, are included below.
Sales
Purpose
Enables management to monitor the revenue of both the Group's own subsidiaries
as well as recognising the strategic importance in its industry of its equity
accounted investments, to ensure programme performance is understood and in
line with expectations.
Definition
Revenue plus the Group's share of revenue of equity accounted investments,
excluding subsidiaries' revenue from equity accounted investments.
Reconciliation of sales to revenue
2025 2024
£m £m
Sales 30,662 28,335
Deduct: Group's share of revenue of equity accounted investments (4,194 ) (3,729 )
Add: Subsidiaries' revenue from equity accounted investments 1,868 1,706
Revenue 28,336 26,312
Underlying EBIT
Purpose
Provides a measure of operating profitability, excluding one-off events or
adjusting items that are not considered to be part of the ongoing operational
transactions of the business, to enable management to monitor the performance
of recurring operations over time, and which is comparable across the Group.
Definition
Operating profit excluding amortisation of programme, customer-related and
other intangible assets, impairment of equity accounted investments and
intangible assets, net finance costs and tax expense of equity accounted
investments (EBIT) and adjusting items. The exclusion of amortisation of
acquisition-related intangible assets is to allow consistent comparability
internally and externally between our businesses, regardless of whether they
have been grown organically or via acquisition.
Reconciliation of underlying EBIT to operating profit
2025 2024
£m £m
Underlying EBIT 3,322 3,015
Adjusting items 40 23
Amortisation of programme, customer-related and other intangible assets, and (414 ) (344 )
impairment of equity accounted investments and intangible assets
Net finance income of equity accounted investments 60 59
Tax expense of equity accounted investments (83 ) (68 )
Operating profit 2,925 2,685
Return on sales
Purpose
Provides a measure of operating profitability, excluding one-off events, to
enable management to monitor the performance of recurring operations over
time, and which is comparable across the Group.
Definition
Underlying EBIT as a percentage of sales. Also referred to as margin.
2025 2024
£m £m
Sales 30,662 28,335
Underlying EBIT 3,322 3,015
Return on sales 10.8 % 10.6 %
Underlying earnings per share (EPS)
Purpose
Provides a measure of the Group's underlying performance, which enables
management to compare the profitability of the Group's recurring operations
over time.
Definition
Profit for the year attributable to shareholders, excluding post-tax impact of
amortisation of programme, customer-related and other intangible assets,
impairment of equity accounted investments and intangible assets, non-cash
finance movements on pensions and financial derivatives, and adjusting items
attributable to shareholders, being underlying earnings, divided by number of
shares as defined for Basic EPS in accordance with IAS 33 Earnings per Share.
Reconciliation of underlying earnings to profit attributable to equity
shareholders
2025 2024
£m £m
Underlying earnings for the year attributable to equity shareholders 2,253 2,065
Adjustments:
Adjusting items 40 23
Amortisation of programme, customer-related and other intangible assets, and (414 ) (344 )
impairment of equity accounted investments and intangible assets
Net interest income on post-employment benefit obligations 57 20
Fair value and foreign exchange adjustments on financial instruments and 34 82
investments
Tax impact of adjustments 92 110
Profit for the year attributable to equity shareholders 2,062 1,956
Reconciliation of underlying EBIT to underlying earnings
2025 2024
£m £m
Underlying EBIT 3,322 3,015
Group and equity accounted investments' underlying net finance costs (see (384 ) (396 )
reconciliation on page 42)
Underlying tax expense (see reconciliation on page 43) (596 ) (469 )
Underlying profit for the year 2,342 2,150
Deduct: Non-controlling interests (89 ) (85 )
Underlying earnings for the year attributable to equity shareholders 2,253 2,065
Weighted average number of ordinary shares used in calculating basic EPS 2,997 3,013
Underlying EPS - basic 75.2p 68.5p
Weighted average number of ordinary shares used in calculating diluted EPS 3,031 3,053
Underlying EPS - diluted 74.3p 67.6p
Adjusting items
Purpose
To adjust items of financial performance from the reported underlying results
which have been determined by management as being material by their size or
incidence and not relevant to an understanding of the Group's underlying
business performance.
Definition
Adjusting items include profit or loss on business transactions, the impact of
substantively enacted tax rate changes, and costs incurred which are one-off
in nature, for example non-routine costs or income relating to post-retirement
benefit schemes, and other items which management has determined as not being
relevant to an understanding of the Group's underlying business performance.
2025 2024
£m £m
Net profit on business disposals 12 94
Net gain related to plan amendments / settlements on pension schemes 51 13
Acquisition and integration-related costs (22 ) (72 )
Other (1 ) (12 )
Adjusting items 40 23
Underlying net finance costs
Purpose
Provides a measure of net finance costs associated with the operational
borrowings of the Group that is comparable over time.
Definition
Net finance costs for the Group and its share of equity accounted investments,
excluding net interest income/expense on post-employment benefit obligations
and fair value and foreign exchange adjustments on financial instruments.
2025 2024
£m £m
Net finance costs - Group (353 ) (353 )
Deduct:
Net interest income on post-employment benefit obligations (54 ) (18 )
Fair value and foreign exchange adjustments on financial instruments (35 ) (84 )
Underlying net finance costs - Group (442 ) (455 )
Net finance income - equity accounted investments 60 59
(Deduct)/add back:
Net interest income on post-employment benefit obligations (3 ) (2 )
Fair value and foreign exchange adjustments on financial instruments 1 2
Underlying net finance income - equity accounted investments 58 59
Total of Group and equity accounted investments' underlying net finance costs (384 ) (396 )
Underlying effective tax rate
Purpose
Provides a measure of tax expense for the Group, excluding one-off items, that
is comparable over time.
Definition
Tax expense for the Group and its share of equity accounted investments,
excluding any one-off tax benefit/expense related to adjusting items and other
items excluded from underlying EBIT, as a percentage of underlying profit
before tax.
Calculation of the underlying effective tax rate
2025 2024
£m £m
Underlying EBIT (see reconciliation on page 41) 3,322 3,015
Group and equity accounted investments' underlying net finance costs (see (384 ) (396 )
reconciliation on page 42)
Underlying profit before tax 2,938 2,619
Group tax expense (421 ) (291 )
Tax expense of equity accounted investments (83 ) (68 )
Exclude:
Tax effect of taxable adjusting items 10 (33 )
Tax effect of other items excluded from underlying profit (102 ) (77 )
Underlying tax expense (596 ) (469 )
Underlying effective tax rate 20 % 18 %
Free cash flow
Purpose
Provides a measure of cash generated by the Group's operations after servicing
debt and tax obligations, available for use in line with the Group's capital
allocation policy.
Definition
Net cash flow from operating activities, including dividends received from
equity accounted investments, interest paid, net of interest received, net
capital expenditure and financial investments, and principal elements of lease
payments and receipts.
Reconciliation from free cash flow to net cash flow from operating activities
2025 2024
£m £m
Free cash flow 2,158 2,505
Add back:
Interest paid, net of interest received 433 413
Net capital expenditure and financial investment 959 987
Principal element of lease payments and receipts 181 178
Deduct:
Dividends received from equity accounted investments (299 ) (158 )
Net cash flow from operating activities 3,432 3,925
Operating business cash flow
Purpose
Provides a measure of cash generated by the Group's operations, which is
comparable across the Group, to service debt and meet tax obligations, and in
turn available for use in line with the Group's capital allocation policy.
Definition
Net cash flow from operating activities excluding tax paid net of research and
development expenditure credits received and including net capital expenditure
(net of proceeds from funding of assets) and lease principal amounts,
financial investment and dividends from equity accounted investments.
Reconciliation from operating business cash flow to net cash flow from
operating activities
2025 2024
£m £m
Operating business cash flow 2,787 3,093
Add back:
Net capital expenditure and financial investment 959 987
Principal element of lease payments and receipts 181 178
Deduct:
Dividends received from equity accounted investments (299 ) (158 )
Tax paid net of research and development expenditure credits received (196 ) (175 )
Net cash flow from operating activities 3,432 3,925
Reconciliation of operating business cash flow to net cash flow from operating
activities by reporting segment
Operating business cash flow Deduct: Add back: Net cash flow from operating activities
Dividends received from equity accounted investments Net capital expenditure, lease principal amounts and financial investment
2025 2024 2025 2024 2025 2024 2025 2024
£m £m £m £m £m £m £m £m
Electronic Systems 1,337 801 (11 ) (11 ) 245 254 1,571 1,044
Platforms & Services 166 732 - (1 ) 226 245 392 976
Air 904 1,243 (278 ) (138 ) 247 254 873 1,359
Maritime 373 436 (10 ) (8 ) 310 306 673 734
Cyber & Intelligence 59 139 - - 56 55 115 194
HQ (52 ) (258 ) - - 56 51 4 (207 )
2,787 3,093 (299 ) (158 ) 1,140 1,165 3,628 4,100
Tax paid net of research and development expenditure credits received (196 ) (175 )
Net cash flow from operating activities 3,432 3,925
Net debt (excluding lease liabilities)
Purpose
Allows management to monitor indebtedness of the Group, to ensure the Group's
capital structure is appropriate and capital allocation policy decisions are
suitably informed.
Definition
Cash and cash equivalents, less loans (including debt-related derivative
financial instruments). Net debt does not include lease liabilities.
Components of net debt (excluding lease liabilities)
2025 2024
£m £m
Cash and cash equivalents 3,438 3,378
Debt-related derivative financial instruments (net) 3 89
Loans - non-current (7,190 ) (7,713 )
Loans - current (95 ) (699 )
Net debt (excluding lease liabilities) (3,844 ) (4,945 )
Order intake
Purpose
Allows management to monitor the order intake of the Group together with its
equity accounted investments, providing insight into future years' sales
performance.
Definition
Funded orders received from customers including the Group's share of order
intake of equity accounted investments.
2025 2024
£bn £bn
Order intake 36.8 33.7
Order backlog
Purpose
Supports future years' sales performance of the Group together with its equity
accounted investments.
Definition
Funded and unfunded unexecuted customer orders including the Group's share of
order backlog of equity accounted investments. Unfunded orders include the
elements of US multi-year contracts for which funding has not been authorised
by the customer.
Reconciliation of order backlog, as defined by the Group, to order book(1)
2025 2024
£bn £b
n
Order backlog, as defined by the Group 83.6 77.8
Deduct:
Unfunded order backlog (5.6 ) (5.3 )
Share of order backlog of equity accounted investments (20.5 ) (16.6 )
Add back: Order backlog in respect of orders from equity accounted investments 5.6 4.5
Order book(1) 63.1 60.4
1. Order book represents the transaction price allocated to
unsatisfied and partially satisfied performance obligations as defined by IFRS
15 Revenue from Contracts with Customers.
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