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Britain’s biggest defense company reports robust performance in second quarter

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- Data Covid-19 USA — 

Britain’s biggest defense com­pa­ny BAE Sys­tems report­ed that sales increased by 4% on a con­stant cur­ren­cy basis and exclud­ing the impact of acqui­si­tions, to £9.9bn or $13 billion.

“We have deliv­ered a robust per­for­mance in the first half of the year, thanks to the efforts of all of our employ­ees. We start­ed the year from a strong posi­tion and we have tak­en actions to enhance our resilience, ensur­ing we con­tin­ued to deliv­er against our cus­tomer pri­or­i­ties, whilst keep­ing our employ­ees safe,” said Chief Exec­u­tive, BAE Sys­tems adding that: “Assum­ing no sig­nif­i­cant COVID-19 resur­gence, we expect a good sec­ond half to the year. Demand for our capa­bil­i­ties remains high and we recog­nise our role not only in sup­port­ing nation­al secu­ri­ty, but also in con­tribut­ing to the economies of the coun­tries in which we operate.”

BAE Sys­tems expects the Group’s under­ly­ing earn­ings per share to be a mid-sin­gle dig­it per­cent­age low­er than last year’s 45.8p, assum­ing a US$1.25 to ster­ling exchange rate and at a tax rate now expect­ed to be 19%, in line with last year. The final rate is depen­dent on the geo­graph­ic mix of profits.

In 2020 the Group now expects free cash flow as defined by the Group, exclud­ing the £1bn pen­sion pay­ment, to be approx­i­mate­ly £800m for the full year, close to our orig­i­nal guid­ance allow­ing for the low­er earnings.

Finan­cial per­for­mance mea­sures as defined by the Group

  • Sales increased by 4% on a con­stant cur­ren­cy basis and exclud­ing the impact of acqui­si­tions, to £9.9bn.
  • Under­ly­ing EBITA of £895m decreased by 11% on a con­stant cur­ren­cy basis and exclud­ing the impact of acquisitions.
  • Under­ly­ing earn­ings per share decreased by 15% to 18.7p, exclud­ing the impact in 2019 of the one-off tax ben­e­fit. The Group’s under­ly­ing effec­tive tax rate for the first half of the year was 19%.
  • Oper­at­ing busi­ness cash out­flow of £880m, includ­ing the impact of the £1bn injec­tion into the UK pen­sion scheme.
  • Net debt at £2,038m (£743m at 31 Decem­ber 2019) fol­low­ing the £1bn bond issuance to fund the UK pen­sion deficit, and the acqui­si­tion of the Air­borne Tac­ti­cal Radios busi­ness for cash of £217m.
  • Order back­log has increased in the first half of the year to £46.1bn. Trad­ing on mul­ti-year, long-term con­tracts in the Air sec­tor was off­set by a 7% increase in our US busi­ness and a for­eign exchange benefit.

BAE Sys­tems oper­a­tional and strate­gic key points:

Air

  • The Qatar Typhoon pro­gramme achieved key mile­stones ahead of schedule.
    Pro­duc­tion of F‑35 rear fuse­lage assem­blies will ramp up to full rate by 2021. 50 assem­blies have been deliv­ered in the period.
  • The sec­tor con­tin­ues to work close­ly with indus­try part­ners and the UK gov­ern­ment to con­tin­ue to ful­fil con­trac­tu­al sup­port arrange­ments in Sau­di Ara­bia on the key Euro­pean col­lab­o­ra­tion programmes.
  • Nego­ti­a­tions for the tran­si­tion through to mid-2022 to a reduced scope sup­port solu­tion for the Oman­i­Ty­phoon fleet are ongo­ing and expect­ed to con­clude ear­ly in the sec­ond half of the year.
  • The next phase of the Tem­pest next-gen­er­a­tion Future Com­bat Air pro­gramme continues.
  • In Aus­tralia the Hunter Class frigate pro­gramme is pro­gress­ing to plan and ASC Ship­build­ing has been inte­grat­ed into our Aus­tralian operations.

Mar­itime and Land UK

  • The build phase of the Riv­er Class Off­shore Patrol Ves­sel pro­gramme remains on tar­get for com­ple­tion in 2020, with the fourth ves­sel, HMS Tamar, accept­ed by the cus­tomer in the period.
  • Con­struc­tion of the first two City Class Type 26 frigates for the Roy­al Navy con­tin­ues to progress.
  • The fourth Astute Class sub­ma­rine, HMS Auda­cious, was accept­ed and left our Bar­row site in April to begin sea tri­als with the Roy­al Navy.
  • Con­struc­tion of the first two Dread­nought Class sub­marines con­tin­ues to advance.
    An 18-month exten­sion to the Mar­itime Sup­port Deliv­ery Frame­work (MSDF) to pro­vide engi­neer­ing and sup­port ser­vices to Portsmouth Naval Base and the Portsmouth flotil­la was signed in March.
  • Ship sup­port main­tained at Portsmouth Naval Base under chal­leng­ing COVID-19 conditions.
  • RBSL is expect­ed to secure the con­tract for its share of work on the Mech­a­nised Infantry Vehi­cle pro­gramme in the sec­ond half of the year.

Elec­tron­ic Systems

  • F‑35 elec­tron­ic war­fare sys­tems deliv­er­ies for Lot 12 com­plet­ed, with over 650 elec­tron­ic war­fare sys­tems deliv­ered to date.
  • Suc­cess­ful demon­stra­tion of APKWS® ground-launch capability.
    Ter­mi­nal High Alti­tude Area Defense (THAAD) seek­er is exe­cut­ing at full rate pro­duc­tion and received an addi­tion­al order to design and man­u­fac­ture next-gen­er­a­tion infrared seekers.
  • The busi­ness con­tin­ues to expe­ri­ence growth in clas­si­fied work.
    Demand in the com­mer­cial busi­ness lines of Con­trols & Avion­ics Solu­tions, and Pow­er & Propul­sion Solu­tions, has been impact­ed by COVID-19.
  • Acquired the Air­borne Tac­ti­cal Radios busi­ness from Raytheon Tech­nolo­gies Cor­po­ra­tion, expand­ing our full spec­trum com­mu­ni­ca­tions port­fo­lio with mul­ti-band radios and advanced cryp­to­graph­ic technologies.

Plat­forms & Ser­vices (US)

  • Imple­men­ta­tion of process and automa­tion improve­ments is under way in Com­bat Mis­sion Sys­tems production.
  • M109A7 vehi­cle con­sis­tent­ly deliv­er­ing at full rate pro­duc­tion levels.
  • Armored Mul­ti-Pur­pose Vehi­cle Low-Rate Ini­tial Pro­duc­tion under way, with the first vehi­cle to be com­plet­ed in the sec­ond half of the year.
  • Amphibi­ous Com­bat Vehi­cle Low-Rate Ini­tial Pro­duc­tion con­tin­ues along with design devel­op­ment of two new mis­sion variants.
  • Bradley award for $267m (£216m) received in June.
  • The US Ship Repair busi­ness received orders totalling $430m (£348m) in the peri­od, includ­ing a $200m (£162m) award to ser­vice the USS Box­er in San Diego.
  • US Navy awards totalling $166m (£134m) for the pro­duc­tion of mis­sile can­is­ters sup­port­ing the Ver­ti­cal Launch­ing Sys­tem, with a max­i­mum val­ue of up to $955m (£773m) over five years if all options are exercised.

Cyber & Intelligence

  • The US-based Intel­li­gence & Secu­ri­ty busi­ness con­tin­ues to increase its bid pipeline, per­form on exist­ing con­tracts and win new orders.
  • Exit from the loss-mak­ing UK-based Enter­prise Man­aged Secu­ri­ty Ser­vices busi­ness was completed.
  • Dis­cus­sions regard­ing the sale of the Applied Intel­li­gence US-based soft­ware-as-a-ser­vice busi­ness are continuing.
  • Applied Intelligence’s Gov­ern­ment busi­ness con­tin­ues to per­form well, and the Finan­cial Ser­vices busi­ness deliv­ered growth in order intake in the peri­od despite COVID-19 disruption.

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