Slide 1: 2018 Preliminary Results
© BAE Systems 2019 2018 Preliminary Results 21 February 2019 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 2019 Sir Roger Carr Chairman 2
Slide 3: Charles Woodburn, Chief Executive
© BAE Systems 2019 Charles Woodburn Chief Executive 3
Slide 4: 2018 – Full Year Overview
© BAE Systems 2019 2018 – Full Year Overview 2018 2017 Full Year Full Year Sales £18,407m £18,487m • Earnings and cash in line with guidance Underlying EBITA £1,928m £1,974m • Record defence order backlog Underlying EPS 42.9p 42.1p • Performance issues being addressed Dividend per share 22.2p 21.8p
Slide 5: Order Backlog
© BAE Systems 2019 Order Backlog US sectors all had a book to bill >1 • Growth of 25% in 2018 to £48.4bn • Key wins secured globally Electronic Systems 1.17x • Provides visibility of sales growth Cyber & Intelligence 1.07x Order Backlog by Sector - £48.4bn P&S (US) 1.23x Cyber & Geographic Mix Platf
Slide 6: Key Franchises and Programmes – Illustrative timeline
© BAE Systems 2019 Key Franchises and Programmes – Illustrative timeline • £48.4bn Order Backlog; incumbent positions on key long term programmes; opportunities predominately on aircraft sales and support and land vehicles Key programmes - Order Backlog, Pipeline/incumbent position, Opportunity F-35
Slide 7: Peter Lynas, Group Finance Director
© BAE Systems 2019 Peter Lynas Group Finance Director 7
Slide 8: Key Points
© BAE Systems 2019 Key Points 2018 • Underlying EPS in line with guidance • £2bn Free Cash Flow across 2017 & 2018 • Record high defence order backlog • Dividend growth for 15th consecutive year • Pension valuation assumptions being met 2019 • Targeting mid-single digit underlying EPS growth • Free
Slide 9: 2018 Financial Summary
© BAE Systems 2019 2018 Financial Summary 2018 2017 Sales (1) £18,407m £18,487m Underlying EBITA (1,2) £1,928m £1,974m Underlying Finance Costs (3) £(215)m £(245)m Underlying Earnings per Share (1,4) 42.9p 42.1p Operating Business Cash Flow £993m £1,752m Net Debt £(904)m £(752)m Order Backlog (1) £4
Slide 10: Balance Sheet
© BAE Systems 2019 Balance Sheet (£m) 31 Dec 31 Dec 2018 2017 (1) Drivers Intangible fixed assets 10,658 10,378 FX Tangible fixed assets (2) 2,017 1,977 Capex in Electronic Systems Investments 442 328 Share of EAI profits less dividends received 2017 timing benefit reversal, Platforms & Services Wor
Slide 11: Pensions
© BAE Systems 2019 Pensions (£bn) 31 Dec 31 Dec 2018 2017 Assets 25.7 26.8 Liabilities (29.9) (31.2) Pension deficit (4.2) (4.4) Group share of deficit (3.9) (4.0) UK - Bond yields 2.9% 2.6% Inflation rate 3.1% 3.1% US - Bond yields 4.2% 3.7% Investment returns to date, funding the deficit recovery
Slide 12: Net Cash / (Debt)
© BAE Systems 2019 Net Cash / (Debt) (£m) Electronic Systems 431 2018 Opening Net Debt (752) Cyber & Intelligence 85 Platforms & Services (US) (30) Operating business cash flow 993 Air 666 Interest & Tax (378) Maritime 67 Dividends paid, incl. minorities (731) HQ (226) Operating business cash flow 9
Slide 13: Electronic Systems
© BAE Systems 2019 Electronic Systems 2018 2017 (1) Sales $5,293m $4,637m • Sales growth at 14% F-35 Underlying EBITA $809m $698m Classified activity Margin 15.3% 15.1% APKWS doubled Cash flow $575m $580m Commercial business Order backlog $6.9bn $6.4bn • Margin performance per guidance • Cas
Slide 14: Cyber & Intelligence
© BAE Systems 2019 Cyber & Intelligence 2018 2017 (1) Sales $2,240m $2,343m • Sales down 5% on a constant currency basis Intelligence & Security down 4%; IT services Underlying EBITA $148m $74m contract Margin 6.6% 3.2% Applied Intelligence down 9%; business re-focused Cash flow $113m $149m • Ma
Slide 15: Platforms & Services (US)
© BAE Systems 2019 Platforms & Services (US) 2018 2017 (1) Sales $4,011m $3,804m • Sales up 5%, growth lower than guidance Later order awards on Paladin Underlying EBITA $281m $305m Ship Repair utilisation Margin 7.0% 8.0% • Margin performance impacted by 1st half charges Cash flow $(40)m $286m
Slide 16: Air
© BAE Systems 2019 Air 2018 2017 (1) Sales £6,712m £7,210m • Sales down 7% Typhoon production for Europe, KSA, Oman Underlying EBITA £859m £967m largely complete Margin 12.8% 13.4% F-35 ramping to plan Middle East support volumes Cash flow £666m £832m • Margin performance includes 70bps benefi
Slide 17: Maritime
© BAE Systems 2019 Maritime 2018 2017 (1) Sales £2,975m £2,877m • Sales up 3% Dreadnought & Type 26 ramping up Underlying EBITA £209m £251m Carrier activity reducing Margin 7.0% 8.7% • EBITA impacted by Cash flow £67m £278m £47m charge on OPV contract Carrier traded more conservatively Order
Slide 18: 2019 Guidance - Trading
© BAE Systems 2019 2019 Guidance - Trading 2018 Actual 2019 Guidance (1,2) Sales (£m) Margin (%) Sales Margin Electronic Systems 3,965 15.3 mid-single digit 14% - 16% Cyber & Intelligence 1,678 6.6 stable c.7% mid to high Platforms & Services (US) 3,005 7.0 8% - 9% single digit Air 6,712 12.8 +c.10%
Slide 19: 2019 – 2021 Targeted Free Cash Flow
© BAE Systems 2019 2019 – 2021 Targeted Free Cash Flow £bn (1,2) Comments EBITA 5.7 – 6.0 - excludes EAIs Capex over depreciation (0.3) - supports US growth; spend peaks in 2019 Working capital growth (0.2) - non-linear; Qatar outflows in 2019 5.2 – 5.5 Pension deficit funding (0.8) - per current fu
Slide 20: Charles Woodburn, Chief Executive
© BAE Systems 2019 Charles Woodburn Chief Executive 20
Slide 21: Market Environment - US
© BAE Systems 2019 Market Environment - US • US – 42%(1) • Recent budgets drive growth • Positive momentum in support of military readiness and modernisation • Classified sales increasing • Portfolio well positioned to meet customer priorities US Defense Budget2 $bn 800 700 600 500 FY15 FY16 FY17 FY
Slide 22: Alignment with DoD growth areas
© BAE Systems 2019 Alignment with DoD growth areas Growth Areas BAE Programs & Opportunities Combat vehicles for Army, Marine Corps, Combat Vehicles and international partners Long Range / Precision-guided munitions, missile seekers, Precision Fires extended range artillery, railgun P&S Missile seek
Slide 23: Market Environment - UK
© BAE Systems 2019 Market Environment - UK • UK – 25%(1) • Modernising Defence Programme • Defence and security remains high priority • Combat Air Strategy launched • Long-term contract positions • Stable outlook (2) (1) Group Sales by Destination (2) Source: UK MoD Defence Equipment Plan 2018 23
Slide 24: Market Environment – International
© BAE Systems 2019 Market Environment – International Australia Defence Budget(1) • Saudi Arabia - 14%(3) • Long standing support contracts • Licences • Continue to support 2030 vision • KPCs sales and minority interest up • Australia - 3%(3) • Hunter Class frigate programme • Business expected to d
Slide 25: Strategic priorities delivery – 2018
© BAE Systems 2019 Strategic priorities delivery – 2018 Driving Operational Advancing Technological Improving Competitiveness Excellence Innovation Driving Operational Excellence • APKWS and Electronic Warfare ramp up • UK Air programmes – strong performance • Submarine performance improvement • U
Slide 26: Strategic priorities delivery – 2018
© BAE Systems 2019 Strategic priorities delivery – 2018 Driving Operational Advancing Technological Improving Competitiveness Excellence Innovation Improving Competitiveness • New organisation structure embedded • Procurement improvements • Competitive programme wins • US Amphibious Combat Vehic
Slide 27: Strategic priorities delivery – 2018
© BAE Systems 2019 Strategic priorities delivery – 2018 Driving Operational Advancing Technological Improving Competitiveness Excellence Innovation Advancing Technological Innovation • Collaboration increasing • Technology plans in place • Investment in 2018 • Prismatic UAV capability • Reacti
Slide 28: Summary
© BAE Systems 2019 Summary • Strategy clear and consistent • Multi year growth visibility underpinned by order backlog • Clear focus on operational excellence and driving efficiency • Diverse portfolio - long term programme positions • Strong customer relationships; in country partnerships and colla
Slide 29: Supplementary Information
© BAE Systems 2019 Supplementary Information 29
Slide 30: Key franchises and programmes - US
© BAE Systems 2019 Key franchises and programmes - US 5 Year Sales outlook • Electronic Systems - $5.3bn - 2018 • Broad portfolio – well placed • F-35 and F-15 upgrades ramp up • Classified work increasing • APKWS – high demand • Commercial franchises on Engine and Flight controls • US Platforms and
Slide 31: Key franchises and programmes Air - £6.7bn - 2018
© BAE Systems 2019 Key franchises and programmes Air - £6.7bn - 2018 5 year Sales outlook • Typhoon Production (9%) • Qatar stabilises outlook post 2018 to early 2020s • Further orders secured would either extend or enhance profile • Global fleet still increasing, ongoing upgrades • Typhoon Support
Slide 32: Key franchises and programmes – Maritime and Cyber
© BAE Systems 2019 Key franchises and programmes – Maritime and Cyber 5 year Sales outlook • Maritime (& UK Land) £3.0bn - 2018 • Long-term contracted programmes • Astute and Dreadnought production • Type 26 activity to increase • QEC build programme moving towards completion • Support services and
Slide 33: Capital Allocation
© BAE Systems 2019 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 34: EPS Bridge (pence)
© BAE Systems 2019 EPS Bridge (pence) 50 45 1.5 0.1 1.5 0.8 1.9 0.8 1.1 40 1.2 1.7 42.1 42.9 35 30 2017 F/X Finance Tax P&S (US) Maritime Air volumes ES AI All 2018 Full Year (1) Costs performance OPV (Typhoon growth breakeven other Full Year issues performance production) issues (1) Restated for th
Slide 35: 2018 Financial Performance
© BAE Systems 2019 2018 Financial Performance (£m / £bn backlog) Underlying Cash Order Sales EBITA Margin Flow Backlog Electronic Systems 3,965 606 15.3% 431 5.4 Cyber & Intelligence 1,678 111 6.6% 85 1.9 Platforms & Services (US) 3,005 210 7.0% (30) 5.4 Air 6,712 859 12.8% 666 27.4 Maritime 2,975 2
Slide 36: Like-for-Like Sales & Underlying EBITA
© BAE Systems 2019 Like-for-Like Sales & Underlying EBITA Sales Underlying EBITA 2018 2017 Yr-on-Yr 2018 2017 Yr-on-Yr As Reported 18,407 18,487 - 1,928 1,974 (2)% Foreign exchange: USD (257) (29) EUR 9 1 Other (50) (6) Adjusted for foreign exchange 18,407 18,189 1% 1,928 1,940 (1)% 36
Slide 37: Reconciliation of Earnings
© BAE Systems 2019 Reconciliation of Earnings (£m / pence EPS) 2018 2017 2018 2017 Underlying Underlying(1) Reported Reported(1) Underlying EBITA 1,928 1,974 1,928 1,974 Non-recurring items (154) (13) EBITA 1,774 1,961 Amortisation/Impairment (118) (470) Underlying Finance Costs (215) (245) (215) (2
Slide 38: Working Capital Movements - reconciliation to Cash Flow
© BAE Systems 2019 Working Capital Movements - reconciliation to Cash Flow (£m) Movement analysed between: 31 Dec 31 Dec Cash 2018 2017(2) Mvmt F/X M&A Other Flow Inventories 774 733 (41) (22) 3 (6) (16) Receivables - non-current 352 387 Receivables - current 5,177 4,244 Total Receivables 5,529 4,63
Slide 39: Impact of adoption of IFRS 16 Leases
© BAE Systems 2019 Impact of adoption of IFRS 16 Leases (£m) 31 Dec 1 Jan 2018 IFRS 16 2019 Intangible fixed assets 10,658 10,658 Estimated P&L impact in 2019 Tangible fixed assets 2,017 1,300 3,317 £m Investments 442 (11) 431 Electronic Systems 4 Working capital (3,288) 33 (3,255) Cyber & Intellige