Slide 1: 2019 Preliminary Results
2019 Preliminary Results 20 February 2020 All statements other than statements of historical fact included in this document, including, without limitation, those regarding the financial condition, results, operations and businesses of BAE Systems and its strategy, plans and objectives and the market
Slide 2: Sir Roger Carr, Chairman
Sir Roger Carr Chairman Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a registered trademark. 2
Slide 3: Charles Woodburn, Chief Executive
Charles Woodburn Chief Executive Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a registered trademark. 3
Slide 4: 2019 – Full Year Overview
2019 – Full Year Overview 2019 2018 Full Year Full Year • 2019 good overall operational performance Sales £20,109m £18,407m Underlying EBITA £2,117m £1,928m • US outlook enhanced: Underlying EPS • Further backlog growth - excl. one-off tax benefit 45.8p 42.9p • 2 proposed acquisitions - incl. one-of
Slide 5: Positive outlook for the business
Positive outlook for the business • Operational performance improvement • Strong order backlog and programme visibility • Cash generation improving – to be included in long term incentives • Market positions and outlook remain strong • Strategy consistent and working • Pension actions good for all s
Slide 6: Major Programme Status
Operational performance improving Major Programme Status • F-35 – Ramped to 142 sets in 2019; c.160 targeted in 2020 • Qatar Typhoon and Hawk – Typhoon deliveries being accelerated, meeting milestones • UK Typhoon support – 4 years in, performing strongly • KSA support – Managing licence positio
Slide 7: Key Franchises and Programmes – Illustrative timeline
Strong programme visibility Key Franchises and Programmes – Illustrative timeline • £45.4bn Order Backlog; incumbent positions on key long term programmes; opportunities predominately on aircraft sales and support, electronic systems and land vehicles Key programmes - Order Backlog, Pipeline/inc
Slide 8: Market Environment - US - 43%
Market outlook remains positive Market Environment - US - 43%(1) % Group Sales by Destination: US • Budgets and programme positions drive good growth 44 42 • Strong book to bill in Electronic Systems and Combat Vehicles 40 38 • Momentum in support of military readiness and modernisation 36 34 • Cl
Slide 9: Market Environment - UK - 22%
Market outlook remains positive Market Environment - UK - 22%(1) (2) • UK Political clarity • UK largest defence market in Europe • Defence and security remains high priority • Above inflationary spend committed • Defence and Security review expected in 2020 % Group Sales by Destination: UK • Long
Slide 10: Market Environment - International
Market outlook remains positive Market Environment - International • Saudi Arabia - 13%(2) • Managing licence position • Long standing support contracts • Continue to support 2030 vision • Australia - 3%(2) • Hunter Class frigate programme • Business expected to double over time • Qatar - major de
Slide 11: Delivering the strategy
Strategy Delivering the strategy • Strategic actions - portfolio shaping: Drive • 2 proposed acquisitions announced totalling $2.2bn operational • 2 unmanned technology bolt-on acquisitions excellence • Saudi partner companies • AACC sale completed • AEC proposed sale Improve our • UK Land JV comp
Slide 12: Summary
Summary • Focus on strong programme performance • Strategy and capital allocation clear and consistent • Multi year growth visibility underpinned by order backlog • Balance sheet – maintain investment grade rating • Diverse portfolio: • Long term programme positions • Geographic mix • Support, elect
Slide 13: Peter Lynas, Group Finance Director
Peter Lynas Group Finance Director Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a registered trademark. 13
Slide 14: Key Points
Key Points • 2019 Underlying EPS of 45.8p* in line with guidance • 2019 Free Cash Flow of £850m slightly ahead of guidance • Dividend growth for 16th consecutive year • Reduced UK pension funding deficit • Looking ahead: Targeting mid-single digit underlying EPS growth in 2020 2020 - 2022 Free C
Slide 15: 2019 Financial Summary
2019 Financial Summary 2019 2018 Sales £20,109m £18,407m Underlying EBITA (1,2) £2,117m £1,928m Underlying Finance Costs (1,3) £(257)m £(215)m Underlying Earnings per Share (1,4) - excluding one-off tax benefit (5) 45.8p 42.9p - including one-off tax benefit (5) 50.8p 42.9p Operating Business Cash F
Slide 16: Balance Sheet
Balance Sheet 31 Dec 31 Dec £m 2019 2018 Drivers Intangible fixed assets 10,371 10,658 Foreign exchange Tangible fixed assets (1) 3,188 2,017 Adoption of IFRS 16 (no 31/12/18 restatement) Investments 441 442 Inventory build, receivables timing & provision Working capital (1,2) (2,854) (3,191) utilis
Slide 17: Pensions – IAS 19
Pensions – IAS 19 £bn 31 Dec 31 Dec 2019 2018 Assets 27.7 25.7 Liabilities (32.5) (30.0) Pension deficit (4.8) (4.3) Group share of deficit (4.5) (4.0) UK - Bond yields 2.1% 2.9% Inflation rate 2.8% 3.1% US - Bond yields 3.1% 4.2% Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a re
Slide 18: Pensions – UK Deficit Funding
Pensions – UK Deficit Funding • 6 of the 9 UK schemes consolidated in October 2019 • Funding valuation accelerated to 31 October 2019 • Agreement reached with Trustees: Funding deficit @ £1.9bn New deficit recovery plan: - £1.0bn payable in near future, to be debt-funded - £240m payable in schem
Slide 19: Net Cash / (Debt)
Net Cash / (Debt) £m 2019 Electronic Systems 672 Opening Net Debt (904) Cyber & Intelligence 68 Platforms & Services (US) 241 Operating business cash flow 1,307 Air 408 Interest & Tax (457) Maritime 150 Free Cash Flow 850 HQ (232) Operating business cash flow 1,307 Dividends paid, incl. minorities (
Slide 20: Electronic Systems
Electronic Systems 2019 2018 Sales $5,668m $5,293m • Sales growth at 7% F-35 Underlying EBITA $877m $809m APKWS Margin 15.5% 15.3% Increased classified activity Cash flow $858m $575m Commercial sales @ $1.2bn Order backlog $7.9bn $6.9bn • Margin performance in line with guidance • Cash conve
Slide 21: Cyber & Intelligence
Cyber & Intelligence 2019 2018 Sales $2,211m $2,240m • Sales broadly unchanged Intelligence & Security 2% lower Underlying EBITA $116m $148m (1) Applied Intelligence up 4% Margin 5.3% 6.6% • Margin performance Cash flow $86m $113m Intelligence & Security again at 9% Applied Intelligence loss
Slide 22: Platforms & Services (US)
Platforms & Services (US) 2019 2018 Sales $4,261m $4,011m • Sales growth at 6% M109A7 delivery ramp up met Underlying EBITA $341m $281m • Margin improved: Margin 8.0% 7.0% 2018 programme charges Cash flow $309m $(40)m AMPV & ACV margin at initial low levels Order backlog $7.7bn $6.8bn • Cash f
Slide 23: Air
Air 2019 2018 Sales £7,457m £6,712m • Sales up 11%: Qatar Typhoon/Hawk Underlying EBITA £887m £859m F-35 Margin 11.9% 12.8% MBDA Cash flow £408m £666m • Margin: 70bps benefit in 2018 on completing Oman Order backlog £23.9bn £27.4bn contract 2019 Sales Low initial margin recognition on Qata
Slide 24: Maritime
Maritime 2019 2018 Sales £3,116m £2,975m • Sales up 5% Dreadnought & Type 26 ramping up Underlying EBITA £268m £209m Carrier & OPVs completing Margin 8.6% 7.0% • Margin performance per guidance Cash flow £150m £67m • Cash flow Order backlog £8.6bn £9.0bn Naval Ships, utilisation of provisions
Slide 25: 2020 Guidance – Trading
2020 Guidance – Trading (1) 2019 Actual 2020 Guidance (2) Sales (£m) Margin (%) Sales Margin Electronic Systems 4,439 15.5% mid-single digit 14% - 16% Cyber & Intelligence 1,732 5.3% stable 7% - 8% Platforms & Services (US) 3,337 8.0% high-single digit 8% - 9% Air 7,457 11.9% mid-single digit 11% -
Slide 26: Free Cash Flow
Free Cash Flow (1) 2019 2020-22 Comments £bn £bn (2,3) Underlying EBITA (4) 1.9 6.2 – 6.4 Excludes EAIs (c.£0.2bn p.a) Dividends received from EAIs 0.1 0.3 Cash dividends received Capex over depreciation (0.2) (0.4) – (0.3) Supports future growth Working capital growth (0.3) (0.5) Supports future gr
Slide 27: Supplementary Information
Supplementary Information Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a registered trademark. 27
Slide 28: Key Franchises and Programmes – Outlook
Key Franchises and Programmes – Outlook (illustrative timeline) Key programmes - Order Backlog, Pipeline/incumbent position, Opportunity • c.15% build of every aircraft • c.3300 in programme of record; c.495 F-35 build and support delivered by Lockheed Martin (Air and Electronic Systems) • Rate 160
Slide 29: Key Franchises and Programmes – Outlook (cont.)
Key Franchises and Programmes – Outlook (cont.) Key programmes - Order Backlog, Pipeline/incumbent position, Opportunity • MoD budget £31bn for 4 boats • 1st Dreadnought in service in 2030s • Dreadnought revenues now above Dreadnought Astute • Majority of scope currently cost plus under single sourc
Slide 30: Key Franchises and Programmes – Outlook (cont.)
Key Franchises and Programmes – Outlook (cont.) Key programmes - Order Backlog, Pipeline/incumbent position, Opportunity • Achieving delivery targets; moving toward full rate production phase M109 • US Army acquisition plan of 689 vehicles • Initial low rate production underway AMPV • 2015 programme
Slide 31: EPS Bridge (pence)
EPS Bridge (pence) 55 50 5.0 2.3 1.2 45 0.9 0.5 0.2 50.8 0.8 (incl 40 one-off tax 45.8 benefit) 42.9 35 30 2018 F/X Tax Minority 2018 AI Other 2019 Interest performance restructuring trading issues Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a registered trademark. 31
Slide 32: 2019 Financial Performance
2019 Financial Performance (£m / £bn backlog) Underlying Cash Order Sales EBITA Margin Flow Backlog Electronic Systems 4,439 687 15.5% 672 6.0 Cyber & Intelligence 1,732 91 5.3% 68 1.8 Platforms & Services (US) 3,337 267 8.0% 241 5.8 Air 7,457 887 11.9% 408 23.9 Maritime 3,116 268 8.6% 150 8.6 HQ 38
Slide 33: Like-for-Like Sales & Underlying EBITA
Like-for-Like Sales & Underlying EBITA (£m / pence EPS) Sales Underlying EBITA Underlying EPS 2019 2018 Yr-on-Yr 2019 2018 Yr-on-Yr 2019 2018 Yr-on-Yr As Reported 20,109 18,407 +9% 2,117 1,928 +10% 45.8p * 42.9p +7% IFRS 16 (approx.) (50) Foreign exchange: USD 361 45 EUR (10) (1) 0.9p Other (27) (3)
Slide 34: Reconciliation of Earnings
Reconciliation of Earnings 2019 Underlying (£m / pence EPS) excl. one-off incl. one-off 2018 2019 2018 tax benefit tax benefit Underlying Reported Reported Underlying EBITA 2,117 2,117 1,928 2,117 1,928 Non-recurring items (27) (154) EBITA 2,090 1,774 Amortisation/Impairment (115) (118) Underlying F
Slide 35: Working Capital Movements - reconciliation to Cash Flow
Working Capital Movements - reconciliation to Cash Flow (£m) Movement analysed between: 31 Dec 31 Dec IFRS Cash 2019 2018 Mvmt F/X 16 M&A Other Flow Inventories 835 774 (61) 21 - - (6) (76) Receivables - non-current 431 352 Receivables - current 5,448 5,177 Total Receivables (1) 5,879 5,529 (350) 15
Slide 36: Capital Allocation
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 > WACC Balance sheet