Slide 1: Half Year Results 30 July 2020
Half Year Results 30 July 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 markets and econo
Slide 2: Charles Woodburn, Chief Executive
Charles Woodburn Chief Executive Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a registered trademark. 2
Slide 3: 2020 – Half Year Overview
2020 – Half Year Overview 2020 2019 Half Year Half Year • Resilient business – sales and cash growth Sales(1) £9,871m £9,416m • Q2 profit impact from COVID-19 disruptions Underlying EBITA £895m £999m Underlying EPS 18.7p 21.9p • Customer demand and relationships strong Operating Cash flow(2) £120m £
Slide 4: COVID-19 - Key Points
COVID-19 - Key Points • Impacts • Response • Rapidly addressed short-term objectives • New working practices introduced in Protecting the well-being of our employees collaboration with stakeholders Delivering against customer priorities • Resilience built in for a prolonged period Supporting o
Slide 5: Brad Greve, Group Finance Director
Brad Greve Group Finance Director Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a registered trademark. 5
Slide 6: Key Points
Key Points Demand Resilient Focus on Capital Allocation: strong delivery liquidity UK Pension funding Dividend payments resumed US acquisitions Orders Sales EBITA OCF Outlook: Stronger second half expected COVID-19: Under-recoveries; Commercial Copyright© 2020 BAE Systems. All Rights Reserved. BAE S
Slide 7: 2020 Half Year Financial Summary
2020 Half Year Financial Summary 2020 2019 Half Year Half Year Sales £9,871m £9,416m Underlying EBITA (1) £895m £999m Underlying Finance Costs (2) £(127)m £(130)m Underlying Earnings per Share (3) 18.7p 21.9p Operating Business Cash Flow - excluding £1bn pension contribution £120m £(309)m - includin
Slide 8: Balance Sheet
Balance Sheet 30 Jun 31 Dec £m 2020 2019 Drivers Intangible fixed assets 10,992 10,371 Acquisition of Airborne Tactical Radios, fx Tangible fixed assets (1) 3,296 3,188 Capital expenditure, fx Investments 380 441 Increased share of pension deficit Working capital (1) (2,085) (2,854) Utilisation of a
Slide 9: UK Pensions
UK Pensions • Increase in IAS 19 accounting deficit resulting from 50bps reduction in net discount rate • In the period to 30 June 2020: Assets increased over contributions made Contributions of £1.3bn, including £1bn non-recurring contribution • Funding position: In line with agreed Recovery
Slide 10: Net Cash / (Debt)
Net Cash / (Debt) 2020 Electronic Systems 64 £m Half Year Cyber & Intelligence 107 Opening Net Debt (743) Platforms & Services (US) 143 Underlying Operating Cash Flow 120 Air 17 Non-recurring UK pension contribution (1,000) Maritime (67) Operating Business Cash Flow (880) HQ (144) Underlying Operati
Slide 11: Electronic Systems
Electronic Systems Half Year: 2020 2019 • Sales stable Commercial sales down 32% Sales $2,777m $2,772m Defence sales up 9% Underlying EBITA $367m $409m • Margin performance impacted by lower commercial Margin 13.2% 14.8% sales Cash flow $81m $177m • Cash conversion reflects usual 2nd half bias
Slide 12: Cyber & Intelligence
Cyber & Intelligence Half Year: 2020 2019 • Sales up 5% like-for-like Intelligence & Security 8% higher Sales $1,151m $1,103m (2) Applied Intelligence stable Underlying EBITA $74m $32m • Margin performance Margin 6.5% 2.9% Intelligence & Security at 8% Cash flow $135m $30m Applied Intelligen
Slide 13: Platforms & Services (US)
Platforms & Services (US) Half Year: 2020 2019 • Sales growth at 10% AMPV, M109A7 & Bradley A4 activity Sales $2,165m $1,970m • Margin impacted by: Underlying EBITA $153m $175m COVID-19 related under-recoveries & supply chain Margin 7.0% 8.9% interruption AMPV & ACV at initial low levels Cash
Slide 14: Air
Air Half Year: 2020 2019 • Sales up 8% like-for-like: Qatar Typhoon, F-35, MBDA Sales £3,610m £3,366m • Margin: Underlying EBITA £356m £438m Under-recoveries Margin 9.9% 13.0% Increased Tempest self-funded R&D • Cash flow Cash flow £17m £(163)m Utilisation of advances Order intake £2,482m £2
Slide 15: Maritime
Maritime Half Year: 2020 2019 • Sales broadly unchanged • Margin performance impacted by COVID-19 related Sales £1,505m £1,525m costs Underlying EBITA £122m £133m • Cash flow Utilisation of advances, including UK Munitions Margin 8.1% 8.7% supply contract Cash flow £(67)m £(92)m • Order backlog Or
Slide 16: 2020 Guidance
2020 Guidance (1,2) • Trading Guidance Sales – expected to increase by low-single digit percentage compared to 2019 → Increased F-35, Combat Vehicles & Qatar Typhoon trading → Growth in electronic defence portfolio offsets decline in commercial businesses Earnings per share – expected mid-single
Slide 17: Charles Woodburn, Chief Executive
Charles Woodburn Chief Executive Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a registered trademark. 17
Slide 18: Positive outlook for the business
Positive outlook for the business • Strategy highly relevant and working • Well-positioned defence portfolio • Governments continue to prioritise defence and security Role to play in economic recovery • Strong order backlog and programme visibility • Acquisitions - a unique opportunity to accelera
Slide 19: Market Environment - US
Market outlook remains positive Market Environment - US • Alignment to US National Defense Strategy priorities and programme positions underpin good growth • Strong 2019 order book increased by over $1bn in the first half, adding further resilience to the portfolio • Strong book to bill in Elect
Slide 20: Market Environment
Market outlook remains positive Market Environment 2019 Full Year Sales by Destination Saudi Arabia UK 22% • Defence and security remains a key priority US 43% • Managing licence position Australia 3% • 70%+ Saudi Nationals • Long standing support contracts KSA • Continue to support 2030 vision Ro
Slide 21: Key Franchises and Programmes – Illustrative timeline
Key Franchises and Programmes – Illustrative timeline • £46.1bn Order Backlog; incumbent positions on key long term programmes; opportunities predominantly on aircraft sales and support, electronic systems and land vehicles Key programmes - Order Backlog, Pipeline/incumbent position, Opportunity F-3
Slide 22: Major Programme Status
Operational performance improving Major Programme Status • F-35 – Targeted year on year increase in 2020 despite COVID-19; ramp to full rate by 2021 • Qatar Typhoon and Hawk – Typhoon and Hawk build programmes meeting milestones • UK Typhoon support – 4 years in, continuing to meet operational p
Slide 23: Lessons learned from COVID-19
Lessons learned from COVID-19 • Demonstrated ability to be agile and rapidly adjust working practices Drive operational excellence • Opportunity to contribute to our competitiveness and efficiency strategic priority • Enforced changes may help future business operations through: Improve our Stre
Slide 24: Summary
Summary • Implemented change in Q2 to embed resilience • Defence business back to near normal activity levels Good H2 expected • Strong customer relationships in our key markets Defence and security remains a priority • Multi year growth visibility underpinned by order backlog • Focus on strong
Slide 25: Supplementary Information
Supplementary Information Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a registered trademark. 25
Slide 26: Key Franchises and Programmes – Outlook (illustrative timeline)
Key Franchises and Programmes – Outlook (illustrative timeline) Key programmes - Order Backlog, Pipeline/incumbent position, Opportunity • c.15% build of every aircraft • c.3,300 in programme of record; c.535 F-35 build and support delivered by Lockheed Martin (Air and Electronic Systems) • Full rat
Slide 27: 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 Astute Dreadnought • Majority of scope currently cost plus under single sourc
Slide 28: Key Franchises and Programmes – Outlook (cont.)
Key Franchises and Programmes – Outlook (cont.) Key programmes - Order Backlog, Pipeline/incumbent position, Opportunity • Achieving delivery targets; moving M109 toward full rate production phase • US Army acquisition plan of 689 vehicles • Initial low rate production underway AMPV • 2015 programme
Slide 29: EPS Bridge (pence)
EPS Bridge (pence) 30 25 0.6 0.2 20 0.6 1.7 2.9 15 21.9 10 18.7 5 0 2019 F/X HY19 HY20 HY20 Other 2020 Half Year and M&A AI restructuring COVID-19 COVID-19 trading Half Year charge impact - impact - Other Commercial Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a registered tradem
Slide 30: 2020 Half Year Financial Performance
2020 Half Year Financial Performance (£m / £bn backlog) Underlying Cash Order Order Sales EBITA Margin Flow Intake Backlog Electronic Systems 2,203 291 13.2% 64 2,820 7.3 Cyber & Intelligence 913 59 6.5% 107 1,007 1.7 Platforms & Services (US) 1,718 121 7.0% 143 2,069 6.5 Air 3,610 356 9.9% 17 2,482
Slide 31: Pensions – IAS 19
Pensions – IAS 19 30 Jun 31 Dec £bn 2020 2019 Assets 29.3 27.7 Liabilities (35.7) (32.5) Pension deficit (6.4) (4.8) Group share of deficit (6.0) (4.5) UK - Bond yields 1.5% 2.1% Inflation rate 2.7% 2.8% US - Bond yields 2.6% 3.1% Copyright© 2020 BAE Systems. All Rights Reserved. BAE SYSTEMS is a re
Slide 32: Like-for-Like Sales & Underlying EBITA
Like-for-Like Sales & Underlying EBITA Half Year: (£m / pence EPS) Sales Underlying EBITA Underlying EPS 2020 2019 Yr-on-Yr 2020 2019 Yr-on-Yr 2020 2019 Yr-on-Yr As Reported 9,871 9,416 +5% 895 999 (10)% 18.7p 21.9p* (15)% M&A (13) 1 Foreign exchange: USD 110 14 0.2p EUR (17) (2) Other (1) - Adjuste
Slide 33: Reconciliation of Half Year Earnings
Reconciliation of Half Year Earnings (£m / pence EPS) 2020 2019 2020 2019 Underlying Underlying Reported Reported Underlying EBITA 895 999 895 999 Non-recurring items (21) (28) EBITA 874 971 Amortisation/Impairment (49) (49) Underlying Finance Costs (127) (130) (127) (130) Pensions & Fair Value mvmt
Slide 34: 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 value enhancing acquisitions sheet allows; must deliver > WACC Balance sheet