BAE Systems plc · LSE:BA.

BAE Systems — Corporate Update (November 2017)

19 slides from BAE Systems's corporate update, Nov 30, 2017

  1. Slide 1: BAE Systems Update: Pensions, Sectors & IFRS 15

    © BAE Systems 2017 BAE Systems Update Pensions, Sectors & IFRS 15 30 November 2017 © Crown copyright 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 Sy

  2. Slide 2: Agenda

    © BAE Systems 2017 Agenda • Introduction – Martin Cooper • Pension Update – Peter Lynas • Reporting Sectors Update – Peter Lynas • IFRS 15 Revenue from Contracts with Customers – Peter Earl • Q&A • Closing remarks 1

  3. Slide 3: Pension Funding Update – Agreement Reached

    © BAE Systems 2017 Pension Funding Update – Agreement Reached • Agreement reached with the Trustees and UK Pensions Regulator on the UK defined benefit schemes • Funding increased by £15m pa from c£205m to c£220m from 2018 • Deficit broadly similar – asset led discount approach, prudent return assum

  4. Slide 4: Reporting Sectors Update

    © BAE Systems 2017 Reporting Sectors Update • 3 operational reporting sectors remain unchanged  Electronic Systems  Platforms & Services (US)  Cyber & Intelligence • UK and International P&S sectors replaced by:  Maritime – UK maritime programmes. Reporting directly to CEO and focusing on operat

  5. Slide 5: External Sectors

    © BAE Systems 2017 External Sectors Current Structure New Structure ● Electronic Systems No change ● Electronic Systems ● Cyber & Intelligence No change ● Cyber & Intelligence - Intelligence & Security - Intelligence & Security - Applied Intelligence - Applied Intelligence ● P&S (US) No change ● P&S

  6. Slide 6: IFRS 15

    © BAE Systems 2017 BAE SYSTEMS INSPIRED WORK [J IFRS 15

  7. Slide 7: Key points

    © BAE Systems 2017 Key points • IFRS 15 effective from 1 January 2018  No impact on lifetime revenue and profitability of contracts  No impact on the Group’s cash flow  No impact on approach to managing contracts  Impact of restating 2017 full year results expected to be a reduction of approxima

  8. Slide 8: IFRS 15 Revenue From Contracts With Customers

    © BAE Systems 2017 IFRS 15 Revenue From Contracts With Customers • IFRS 15 replaces IAS 11 Construction Contracts and IAS 18 Revenue  Impacts contract accounting and accounting for certain software licences  Full retrospective application • 2017 Full Year will report under existing accounting stan

  9. Slide 9: IFRS 15 impacts

    © BAE Systems 2017 IFRS 15 impacts • Accounting implications for the Group • On long-term contracts:  sales recognised earlier based on cumulative costs incurred plus attributable margin  margin will continue to be recognised progressively as risks have been mitigated or retired  margin recognise

  10. Slide 10: “Over Time” sales recognition

    © BAE Systems 2017 “Over Time” sales recognition • IFRS 15 requires sales recognition either “Over Time” or “Point in Time” • Sales recognition on a contract is “Over Time” if:  the customer simultaneously receives & consumes the benefits provided the Group; or  the Group creates or enhances an as

  11. Slide 11: Cumulative impact of “Over Time” sales recognition

    © BAE Systems 2017 Cumulative impact of “Over Time” sales recognition • Cumulative impact to 31 December 2016 • Electronic Systems, Platforms & Services (US)  contracts typically shorter-term £m Sales EBITA Electronic Systems 729 118  margin traded on WIP at close to outturn margin Cyber & Intelli

  12. Slide 12: Development & Production Contracts - MBDA

    © BAE Systems 2017 Development & Production Contracts - MBDA • A few contracts in MBDA joint venture are combined development & production contracts  under existing accounting: − sales recognised in line with milestones achieved; and − margin is recognised as risks are mitigated or retired on the o

  13. Slide 13: Licence Revenue – Applied Intelligence

    © BAE Systems 2017 Licence Revenue – Applied Intelligence • Existing standard (IAS 18) requires software licence sales to be recognised either:  upfront on delivery (perpetual licence), or  spread over the licence term or related customer relationship (term licence) • Recognition of software licen

  14. Slide 14: Transition adjustment – cumulative to 31 December 2016

    © BAE Systems 2017 Transition adjustment – cumulative to 31 December 2016 Development & Licence Sales – Cumulative Production Applied Transition “Over Time” Progs – MBDA Intelligence Adjustment £m Sales EBITA Sales EBITA Sales EBITA Sales Profit Electronic Systems 729 118 - - - - 729 118 Cyber & Int

  15. Slide 15: Summary

    © BAE Systems 2017 Summary • No impact on lifetime revenue and profitability of contracts • No impact on the Group’s cash flow • No impact on approach to managing contracts • Impact of restating 2017 full year results expected to be a reduction of less than 1p on Earnings per Share • Earnings impact

  16. Slide 16: Q&A

    © BAE Systems 2017 Q&A BAE SYSTEMS INSPIRED WORK 15

  17. Slide 17: Appendix

    © BAE Systems 2017 Appendix 16

  18. Slide 18: External Sectors – 2016 Restatement

    © BAE Systems 2017 External Sectors – 2016 Restatement £m 2016 Reported Transfers * 2016 Restated Sales EBITA RoS Sales EBITA Sales EBITA RoS ES 3,282 494 15.1% 3,282 494 15.1% ES C&I 1,778 90 5.1% 1,778 90 5.1% C&I P&S (US) 2,874 211 7.3% 2,874 211 7.3% P&S (US) P&S (Int'l) 3,943 400 10.1% 4,152 55

  19. Slide 19: External Sectors – HY17 Restatement

    © BAE Systems 2017 External Sectors – HY17 Restatement £m HY17 Reported Transfers * HY17 Restated Sales EBITA RoS Sales EBITA Sales EBITA RoS ES 1,726 257 14.9% 1,726 257 14.9% ES C&I 923 35 3.8% 923 35 3.8% C&I P&S (US) 1,433 109 7.6% 1,433 109 7.6% P&S (US) P&S (Int'l) 1,771 176 9.9% 1,996 290 3,7

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