Slide 1: 2017 Preliminary Results
© BAE Systems 2018 2017 Preliminary Results 22 February 2018 All statements other than statements of historical fact included in this document, including, without limitation, those regarding the financial condition, results, operations and businesses of BAE Systems and its strategy, plans and object
Slide 2: Sir Roger Carr, Chairman
© BAE Systems 2018 Sir Roger Carr Chairman 2
Slide 3: Charles Woodburn, Chief Executive
© BAE Systems 2018 Charles Woodburn Chief Executive 3
Slide 4: 2017 – Full Year Overview
© BAE Systems 2018 2017 – Full Year Overview 2017 2016 Full Year Full Year • Earnings in line with expectations Sales £19,626m £19,020m • Cash generation strong Underlying EBITA £2,034m £1,905m • Operational performance good Underlying EPS 43.5p 40.3p • AI goodwill write down Dividend per share 21.8
Slide 5: Strategy and focus areas
© BAE Systems 2018 Strategy and focus areas 5
Slide 6: Strategic Priorities – Operational Excellence
© BAE Systems 2018 Strategic Priorities – Operational Excellence • Key milestones in 2017 • Type 26 production commenced • US programme ramp • Combat Vehicles • Electronic systems • In-Kingdom Hawk assembly commenced • Management changes • 2018 focus • Maritime milestones • Ramp to rate in US • AI p
Slide 7: Strategic Priorities – Competitiveness
© BAE Systems 2018 Strategic Priorities – Competitiveness Crucial to securing opportunities and addressing customer affordability challenges • Key milestones achieved in 2017 • Restructuring actions • New organisation structure • CPO appointed • 2018 focus • Strategic supply chain changes • Embed ne
Slide 8: Strategic Priorities – Technological Innovation
© BAE Systems 2018 Strategic Priorities – Technological Innovation Driver of competitive advantage • Key milestones achieved in 2017 • Increased R&D spend • CTO appointed • Collaboration with universities • 2018 focus • CTO to drive value creation • Focused spend • Technology plan • Collaboration in
Slide 9: Organisational Structure
© BAE Systems 2018 Organisational Structure • Effective 1st January 2018 • Air Sector • Strengthened and streamlined • Focused on delivery and international opportunities • Maritime Sector • Long-term contracted UK maritime programmes • Focused on programme execution • US Businesses unchanged • Well
Slide 10: Market Outlook
© BAE Systems 2018 Market Outlook • US • CR – minimal impact • Budget outlook positive • Portfolio well positioned • UK • Defence and Security remains high priority • Modernising Defence Programme • Long-term contract positions • International Markets • Positive outlook in many of our markets 10
Slide 11: Key franchises and programmes - US
© BAE Systems 2018 Key franchises and programmes - US Sales outlook • Electronic Systems • Broad portfolio – well placed • F-35 and F-15 upgrades ramp up • Classified work increasing • APKWS – high demand • US Platforms and Services US Combat Vehicles • Production set to double in plan • M109, AMP
Slide 12: Key franchises and programmes - Air
© BAE Systems 2018 Key franchises and programmes - Air Sales outlook • Typhoon Production • Qatar stabilises outlook post 2018 • Further orders secured would drive growth • Typhoon Support • Global fleet still increasing, ongoing upgrades • Qatar support package, Oman in place • F-35 Production & Su
Slide 13: Key franchises and programmes – Maritime and Cyber
© BAE Systems 2018 Key franchises and programmes – Maritime and Cyber Sales outlook • Maritime • Long-term contracted programmes • Astute and Dreadnought production • Type 26 • Support services and combat systems • SEA5000, CSC and Type 31 opportunities • Cyber & Intelligence US Intelligence & Sec
Slide 14: Overview
© BAE Systems 2018 Overview • Strategy re-affirmed – strategic priorities • Pension funding agreement reached – future cash flows de-risked • Capital Allocation – clear, consistent and disciplined • Transition earnings year – underpinned by good cash performance • Sustainable business model – firm b
Slide 15: Peter Lynas, Group Finance Director
© BAE Systems 2018 Peter Lynas Group Finance Director 15
Slide 16: Key Points
© BAE Systems 2018 Key Points 2017 • Underlying EPS (1) up 8% • Strong cash performance • Strong order backlog • Dividend growth for the 14th consecutive year • UK pension valuations de-risk future cash flow (1) Earnings excluding amortisation and impairment of intangible assets, non-cash finance mo
Slide 17: Key Points 2018
© BAE Systems 2018 Key Points 2018 • Earnings (1) expected to be in line with 2017, post-IFRS 15 restatement • Headwind from USD translation broadly matched by lower effective tax rate • Overall, US growth projected to be strong • Applied Intelligence moving back to break-even • Free cash flow of c.
Slide 18: 2017 Financial Summary
© BAE Systems 2018 2017 Financial Summary 2017 2016 Sales £19,626m £19,020m Underlying EBITA (1) £2,034m £1,905m Underlying Finance Costs (2) £(245)m £(257)m Underlying Earnings per Share (3) 43.5p 40.3p Operating Business Cash Flow £1,752m £1,004m Net Debt £(752)m £(1,542)m Order Backlog £41.2bn £4
Slide 19: Balance Sheet
© BAE Systems 2018 Balance Sheet (£m) 31 Dec 31 Dec 2017 2016 Drivers Intangible fixed assets 10,378 11,264 FX, £0.4bn Applied Intelligence goodwill impairment Tangible fixed assets (1) 1,977 1,999 FX Investments 390 305 share of lower pension deficit Working capital (3,752) (3,564) £0.4bn re advanc
Slide 20: Pension Deficit (IAS 19)
© BAE Systems 2018 Pension Deficit (IAS 19) (£bn) 31 Dec 30 Jun 31 Dec 2017 2017 2016 Assets 27.0 26.3 25.9 Liabilities (31.2) (32.7) (32.5) Pension deficit (4.2) (6.4) (6.6) Group share of deficit (3.9) (5.9) (6.1) UK - Bond yields 2.6% 2.6% 2.7% Inflation rate 3.1% 3.1% 3.2% US - Bond yields 3.7%
Slide 21: UK Pension Deficit - Accounting v Funding (£bn)
© BAE Systems 2018 UK Pension Deficit - Accounting v Funding (£bn) 6.0 Average Asset Return assumptions (Funding): Growth assets 4.3% like-for-like 5.0 Matched Plus assets 4.3% assets Matched assets 1.8% like-for-like Blended rate 3.3% 4.0 US mortality Discount rate £3.2bn 3.0 UK £3.7bn 2.0 UK £2.1b
Slide 22: Net Cash / (Debt)
© BAE Systems 2018 Net Cash / (Debt) (£m) Electronic Systems 450 2017 Opening Net Debt (1,542) Cyber & Intelligence 116 Platforms & Services (US) 222 Operating business cash flow 1,752 Platforms & Services (UK) 427 Interest & Tax (408) Platforms & Services (Int’l) 671 Equity dividends paid (684) HQ
Slide 23: Electronic Systems
© BAE Systems 2018 Electronic Systems 2017 2016 Sales $4,685m $4,445m • Sales up 5% F-35, DEWS, APKWS Underlying EBITA $724m $670m • Margin performance on strong programme Margin 15.5% 15.1% execution Cash flow $580m $635m • Cash conversion at 85% ex-pension Order backlog $7.3bn $6.5bn • Order bac
Slide 24: Cyber & Intelligence
© BAE Systems 2018 Cyber & Intelligence 2017 2016 Sales $2,346m $2,408m • Sales slightly below guidance US business down 4% Underlying EBITA $67m $121m Applied Intelligence up 6% (1) Margin 2.9% 5.1% • Margin performance Cash flow $149m $112m US business at 8.8% Applied Intelligence underlyi
Slide 25: Platforms & Services (US)
© BAE Systems 2018 Platforms & Services (US) 2017 2016 Sales $3,774m $3,893m • Sales slightly behind guidance land vehicle deliveries to Brazil, Japan delayed Underlying EBITA $312m $286m • Margin after $16m charge for commercial ships Margin 8.3% 7.3% • Cash performance enhanced as commercial shi
Slide 26: Platforms & Services (UK)
© BAE Systems 2018 Platforms & Services (UK) 2017 2016 Sales £7,682m £7,806m • Sales slightly ahead of guidance Submarine programme activity Underlying EBITA £794m £810m • Margin in line with expectation Margin 10.3% 10.4% • Cash performance includes £106m VAT timing Cash flow £427m £199m benefit
Slide 27: Platforms & Services (International)
© BAE Systems 2018 Platforms & Services (International) 2017 2016 Sales £4,138m £3,943m • Sales increase at 5% higher KSA Typhoon support Underlying EBITA £472m £400m increasing MBDA volumes Margin 11.4% 10.1% • Margin ahead of guidance Cash flow £671m £435m KSA partner companies MBDA perfor
Slide 28: 2018 Guidance - Trading
© BAE Systems 2018 2018 Guidance - Trading 2017 Actual (1) 2018 Guidance (2) Sales (£m) Margin (%) Sales Margin Electronic Systems 3,598 15.0 high single digit 14% - 16% Cyber & Intelligence 1,818 3.2 marginally higher c.5% Platforms & Services (US) 2,951 8.0 10% - 15% 9% - 10% Air 7,210 13.4 c.(5)%
Slide 29: Cash Guidance
© BAE Systems 2018 Cash Guidance (£bn) 2018 2017 Guidance Operating items: Net capital expenditure, disposals & depreciation (0.1) (0.2) Working capital - provision utilisation (0.1) (0.1) - advances movement (net) 0.2 nil – (0.3) - other working capital movements 0.2 (0.1) Pension deficit funding (
Slide 30: Charles Woodburn, Chief Executive
© BAE Systems 2018 Charles Woodburn Chief Executive 30
Slide 31: 2017 – Summary
© BAE Systems 2018 2017 – Summary 2017 2016 Full Year Full Year • 2017 – good performance Sales £19,626m £19,020m • Cash generation strong Underlying EBITA £2,034m £1,905m Underlying EPS 43.5p 40.3p • Disciplined capital allocation Dividend per share 21.8p 21.3p • Long-term franchises and contracts
Slide 32: Supplementary Information
© BAE Systems 2018 Supplementary Information 32
Slide 33: 2017 Financial Performance – As Reported
© BAE Systems 2018 2017 Financial Performance – As Reported (£m / £bn backlog) Underlying Cash Order Sales EBITA Margin Flow Backlog Electronic Systems 3,635 562 15.5% 450 5.4 Cyber & Intelligence 1,820 52 2.9% 116 2.1 Platforms & Services (US) 2,928 242 8.3% 222 4.6 Platforms & Services (UK) 7,682
Slide 34: Segment Changes – Sales – 2017 Full Year
© BAE Systems 2018 Segment Changes – Sales – 2017 Full Year (£m) Old New Structure Reorg. IFRS 15 Structure Electronic Systems 3,635 - (37) 3,598 Electronic Systems Cyber & Intelligence 1,820 - (2) 1,818 Cyber & Intelligence Platforms & Services (US) 2,928 - 23 2,951 Platforms & Services (US) Platfo
Slide 35: Segment Changes – Underlying EBITA – 2017 Full Year
© BAE Systems 2018 Segment Changes – Underlying EBITA – 2017 Full Year (£m) Old New Structure Reorg. IFRS 15 Structure Electronic Systems 562 - (21) 541 Electronic Systems Cyber & Intelligence 52 - 6 58 Cyber & Intelligence Platforms & Services (US) 242 - (5) 237 Platforms & Services (US) Platforms
Slide 36: 2017 Financial Performance – Re-presented
© BAE Systems 2018 2017 Financial Performance – Re-presented Re-presented for reporting segments changes and adoption of IFRS 15 (£m / £bn backlog) Underlying Cash Order Sales EBITA Margin Flow Backlog Electronic Systems 3,598 541 15.0% 450 4.8 Cyber & Intelligence 1,818 58 3.2% 116 2.1 Platforms &
Slide 37: Capital Allocation
© BAE Systems 2018 Capital Allocation Pension funding legal obligation capital expenditure, R&D, Organic investment business development sustainable cover of around Dividends two times earnings Return of capital M&A when appropriate & balance sheet value enhancing acquisitions allows ; must deliver
Slide 38: Like-for-Like Sales & Underlying EBITA
© BAE Systems 2018 Like-for-Like Sales & Underlying EBITA Sales Underlying EBITA 2017 2016 Yr-on-Yr 2017 2016 Yr-on-Yr As Reported 19,626 19,020 3% 2,034 1,905 7% Foreign exchange: USD 338 37 EUR 65 7 Other 70 6 Adjusted for foreign exchange 19,626 19,493 1% 2,034 1,955 4% Transactions: Acquisitions
Slide 39: Reconciliation of Earnings
© BAE Systems 2018 Reconciliation of Earnings (£m / pence EPS) 2017 2016 2017 2016 Underlying Underlying Reported Reported Underlying EBITA 2,034 1,905 2,034 1,905 Non-recurring items (13) (12) EBITA 2,021 1,893 Amortisation/Impairment (470) (87) Underlying Finance Costs (245) (257) (245) (257) Pens
Slide 40: Working Capital Movements - reconciliation to Cash Flow
© BAE Systems 2018 Working Capital Movements - reconciliation to Cash Flow (£m) Movement analysed between: Cash 2017 2016 Mvmt F/X M&A Other Flow Inventories 723 744 21 52 - (2) (29) Receivables – current 3,586 3,305 Receivables – non-current 387 351 Total Receivables 3,973 3,656 (317) 160 18 (46) (