BAE Systems plc
Preliminary Announcement 2022
Financial highlights
– Record Order intake of £37.1bn propelled Order backlog to £58.9bn.
– Sales increased by 4.4%1 to £23.3bn.
– Expanded Return on sales by 20bps1 , to 10.7%.
– Underlying earnings per share increased by 9.5%1 to 55.5p.
– Free cash flow of £2.0bn exceeded expectations.
– Increased investment in capital expenditure and R&D.
– Share repurchases totalling £0.8bn in the year.
– Dividend increased by 7.6%.
Results in brief
| Financial performance measures as defined by the Group2 | ||||||
| Year ended 31 December 2022 | Year ended 31 December 2021 | Variance3 | ||||
| Sales | £23,256m | £21,310m | +4.4% | |||
| Underlying EBIT | £2,479m | £2,205m | +5.5% | |||
| Underlying earnings per shareexcluding one-off tax benefit (2021 only)4including one-off tax benefit (2021 only)4 | 55.5p55.5p | 47.8p50.7p | +9.5% | |||
| Free cash flow | £1,950m | £1,864m | +£86m | |||
| Net debt (excluding lease liabilities) | £(2,023)m | £(2,160)m | +£137m | |||
| Order intake5 | £37,093m | £21,458m | +£15,635m | |||
| Order backlog5 | £58.9bn | £44.0bn | +£14.9bn | |||
| Financial performance measures as derived from IFRS2 | |||||
| Year ended 31 December 2022 | Year ended 31 December 2021 | Variance3 | |||
| Revenue | £21,258m | £19,521m | +8.9% | ||
| Operating profit | £2,384m | £2,389m | – | ||
| Basic earnings per share | 51.1p | 55.2p | -7.4% | ||
| Dividend per share | 27.0p | 25.1p | +7.6% | ||
| Net cash flow from operating activities | £2,839m | £2,447m | +£392m | ||
| Group’s share of net post-employment benefits surplus/(deficit) | £0.6bn | £(2.1)bn | +£2.7bn | ||
| Order book | £48.9bn | £35.5bn | +£13.4bn | ||
1. Growth rate on a constant currency basis.
2. We monitor the underlying financial performance of the Group using alternative performance measures. These measures are not defined in International Financial Reporting Standards (IFRS) and therefore are considered to be non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly, the relevant IFRS measures are also presented where appropriate. The purposes and definitions of non-GAAP measures are provided in the Financial performance metrics on page 8.
3. Growth rates for sales, Underlying EBIT and Underlying EPS are on a constant currency basis (i.e. current year compared with prior year translated at current year exchange rates). All other growth rates and year-on-year movements are on a reported currency basis.
4. A one-off tax benefit of £94m was recognised in the prior year, in respect of agreements reached regarding the exposure arising from the April 2019 European Commission decision regarding the UK’s Controlled Foreign Company regime.
5. Including share of equity accounted investments.
Charles Woodburn, Chief Executive , said: “We’ve delivered another year of strong results across the Group. Our employees have done an outstanding job to effectively manage supply chain and inflationary pressures whilst delivering critical capabilities and driving efficiencies for our customers.
“Our diverse geographic footprint, deep customer relationships and highly relevant, leading defence technologies mean we’re well positioned to support national security requirements in an elevated threat environment.
“Our record orders and financial performance give us confidence in delivering long-term growth and to continue investing in new technologies, facilities and thousands of highly skilled jobs, whilst increasing shareholder returns.”
Strategic progress
– Shaped portfolio with acquisition and integration of Bohemia Interactive Simulations (BISim) into the US‑based Intelligence & Security business and divested our non-strategic financial crime detection business in Digital Intelligence.
– Group pension schemes are in a net accounting surplus, resulting in a stronger balance sheet and improved financial flexibility for capital allocation priorities such as dividend growth, M&A and share repurchases.
– Evolved our ESG agenda, supporting our employees and our communities, maintaining high standards of corporate governance, and progressing towards our Net Zero 2030 target.
– Increased self-funded R&D and capital expenditure, as well as apprentice and graduate intake in the year to support our growth outlook.
Operational highlights
Electronic Systems
– Opened state-of-the-art facilities in Manchester, New Hampshire; Cedar Rapids, Iowa; and Austin, Texas.
– Maintained electronic warfare system deliveries across F-35, F-15E and F-15EX and other aircraft platforms.
– Selected to design energy management components for GE Aviation’s megawatt class hybrid electric propulsion system, supporting NASA’s Electrified Powertrain Flight Demonstration project .
Platforms & Services
– Maintained high production tempo on combat vehicles.
– Major new orders and production increases for CV90 and BvS10 vehicles at Hägglunds .
– Ship Repair business activity continues to rebound from COVID-19 related headwinds.
Air
– UK, Japanese and Italian governments reached agreement to merge Tempest sixth generation fighter with Japanese F-X programme to form the Global Combat Air Programme (GCAP).
– Delivered first eight of 24 Eurofighter Typhoons to Qatar.
– F-35 rear fuselage production at full rate levels, with 150 assemblies completed in the year.
Maritime
– Astute Boat five, HMS Anson, exited our Barrow shipyard to commence sea trials in February 2023.
– First Type 26 frigate entered the water and is being outfitted at Scotstoun shipyard in Glasgow.
– Continued progress on UK’s Dreadnought submarine programme and Australia’s Hunter Class frigates programme.
Cyber & Intelligence
– Established Digital Intelligence by combining cyber, space, data analysis, digital transformation, and other advanced capabilities into one unit.
– Strong order intake, revenue growth and programme execution in both Intelligence & Security and Digital Intelligence.
– Completed the acquisition of BISim, which provides cutting-edge virtual training for allied militaries.
Brad Greve, Group Finance Director said, “We’ve delivered sales, underlying EPS and free cash flow all above guidance which is a testament to our people and their continued, long-term focus on operational excellence.
“Our backlog is at £59bn, we’re accelerating our investment in the business and making excellent progress on our share buyback programme, which complements the proposed increase in the dividend.
“For 2023, we’re forecasting further top-line growth, continued margin expansion, higher EPS and we’re also increasing our rolling three-year cash targets, all of which demonstrate that the business has growing momentum for the future.”
Guidance for 2023
While the Group is subject to geopolitical and other uncertainties, the following guidance is provided on current expected operational performance.
The guidance is based on the measures used to monitor the underlying financial performance of the Group. Reconciliations from these measures to the financial performance measures defined in International Financial Reporting Standards for 2022 are provided in our financial review on pages 11 to 16.
With a strong year behind us, we look forward to continued top-line growth with increased return on sales and good free cash delivery against our rolling targets. Our guidance uses the same exchange rate we averaged in 2022 of $1.24:£1.
| Year ended31 December2023 Guidance | Year ended 31 December 2022 Results | |
| Sales | Increase by 3% to 5% | £23,256m |
| Underlying EBIT | Increase by 4% to 6% | £2,479m |
| Underlying EPS | Increase by 5% to 7% | 55.5p |
| Free cash flow | >£1.2bn | £1,950m |
| Cumulative free cash flow 2023-2025 | £4bn – £5bn |
For further information please contact:
| Investors | Media Relations |
| Martin Cooper, Investor Relations DirectorTelephone: +44 (0) 1252 383455 | Kristina Anderson, Director, Media RelationsTelephone: +44 (0) 7540 628673 |
| Email: investors@baesystems.com | Email: kristina.anderson@baesystems.com |
Analyst and investor presentation
A presentation, for analysts and investors, of the Group’s Results for 2022 will be available via webcast at 11.00am today (23 February 2023).
Details can be found on investors.baesystems.com, together with presentation slides and a pdf copy of this report. A recording of the webcast will be available for replay later in the day.
About BAE Systems
At BAE Systems, we provide some of the world’s most advanced, technology-led defence, aerospace and security solutions. We employ a skilled workforce of 93,100 people1 in around 40 countries. Working with customers and local partners, we develop, engineer, manufacture, and support products and systems to deliver military capability, protect national security, and keep critical information and infrastructure secure.
1. Including share of equity accounted investments.
Preliminary results statement
Overview
BAE Systems delivered another strong year of performance in 2022, both financially and operationally. This was achieved despite the headwinds presented by the COVID-19 pandemic, continued supply chain disruptions, rising inflation and ongoing labour shortages. Whilst we expect that some of these challenges will persist, we enter 2023 with a robust competitive position, multiple new business opportunities, and significant financial resources – all of which point to another productive year ahead for BAE Systems and our shareholders.
These outcomes were driven by our people, their unwavering focus on our purpose – “to serve, supply and protect those who serve and protect us” – and a values-driven culture, committed to sustainable business practices and inclusion. This is underpinned by a robust governance structure and high ethical standards.
In 2022, global events resulted in a renewed recognition of the importance of the defence industry and our role in assisting governments in protecting their countries and citizens.
As one of the world’s largest defence contractors, our technologies, capabilities and global footprint ensure we play a leading role in helping our customers meet an elevated threat environment.
This past year, the Group designed, developed, and manufactured a cutting-edge set of products – across the domains of air, land, sea, cyber and space – that our customers count on. Our exceptional product portfolio is enhanced with enabling technologies including artificial intelligence, autonomy, cryptography, and cyber defence, ensuring we remain at the forefront of national security-related technologies.
In addition to our defence portfolio, we continued to see a recovery in our commercial aviation product lines, as passenger flying hours continue to increase. Further, demand for our low and zero emission hybrid and fully electric drive and propulsion systems continued to grow, with emerging opportunities to take these applications into the defence arena, as well as maritime and air applications.
Our markets
A differentiating strength of BAE Systems is our geographic diversity and exposure to many of the world’s largest national defence budgets. Most of the countries in which we operate have either announced increases or are making plans to increase spending to address the elevated threat environment. Whilst global economic and fiscal pressures weigh on governments, the commitment to defence in our major markets remains robust.
Our standing as the UK’s largest defence company, a top 10 defence prime contractor in the US, the largest defence company in Australia, our enduring relationships with multiple customers in the Middle East, and strong European presence contributed to a record annual order intake of £37bn, driving our defence order backlog up to £59bn. This geographic footprint also provides us with the ability to export from the US, the UK, Australia and Sweden into countries which are also planning to increase defence spending.
In the US, by far the world’s largest defence market, we are well aligned to the Department of Defense (DoD)’s emphasis on advanced technologies, which is the fastest growing part of the US budget. In areas like electronic warfare, multi-domain operations, Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) systems and advanced Defense Advanced Research Projects Agency (DARPA) projects, BAE Systems technologies are world-class and map directly into priorities in the US National Defense Strategy. In addition, we expect the renewed importance of armoured combat vehicles in the Ukraine conflict to benefit our combat vehicles business.
In the UK, the 2021 Defence Command Paper renewed commitments to our major programmes in complex warship, submarine and combat aircraft design and build, allowing for long-term investment in these key sovereign capabilities, as well as strong support for the cyber domain.
Our healthy opportunity pipeline is growing with domestic, export and collaboration opportunities, and we have the capabilities to support our UK customer in its emerging space ambitions.
In Europe, where the threat level is acute, the need for new equipment is most urgent and many defence budgets are rising. Our involvement in the Eurofighter Typhoon consortium, shareholding in missile-maker MBDA, ownership of the growing Hägglunds and Bofors businesses, acquisition of Bohemia Interactive Simulations and participation in US foreign military sales enable us to serve the European/NATO market through multiple channels.
The Air sector continues to support a global customer base and we have a significant operational business presence in the Middle East, notably in the Kingdom of Saudi Arabia, Qatar and Oman.
In December 2022, the governments of the UK, Japan and Italy, announced their shared ambition to develop a next generation fighter aircraft under a new Global Combat Air Programme (GCAP). The launch of GCAP firmly positions the UK, alongside Japan and Italy, as leaders in the design, development and production of next generation combat air capability. Working closely with our UK industry partners, the Air sector intends to strengthen its ties with Japanese and Italian industries as we work together to deliver this programme.
2022 financial performance
Our key financial metrics of sales, margin, underlying earnings per share, and free cash flow increased despite supply chain interruptions, labour shortages and the inflationary environment. This was possible because of the excellent work of our employees on programme execution, as well as by the internal efficiency and competitiveness initiatives we have underway.
On a constant currency basis, we grew sales by 4%, increased return on sales by 20 basis points, grew underlying earnings per share by 9%, and recorded another exceptional year for free cash flow of £2.0bn. Together with 2020 and 2021, we over-performed on our stated three-year free cash flow target by more than £1bn.
This collection of strong results was enhanced by our share repurchase programmes. In 2022, we repurchased £793m of our shares, or about 3% of our outstanding shares, completing the remainder of the Board’s 2021 £500m authorisation and the initial tranche of the Board’s three-year £1.5bn authorisation, approved in mid-2022.
Balance sheet strength
BAE Systems ended 2022 with a strong balance sheet, featuring a cash position of £3.1bn, a net debt (excluding lease liabilities) of £2.0bn, and a net pension position that has swung from a significant accounting deficit to an accounting surplus, thanks to the Group’s funding commitments over the years and the higher interest rate environment.
The outcome of the triennial review with the pension Trustee and the Pensions Regulator was positive and has enabled the Group to move forward with a sensible capital allocation strategy that prioritises investing in the business for the long term through R&D and acquisitions in high growth/high return parts of the business, and capital expenditures to ensure our systems and facilities are modern and can support the Group’s expected growth. We are also committed to returning value to shareholders through an attractive dividend, which has increased for 19 consecutive years, and share buybacks based on our confidence in the outlook.
2022 operational performance
Set against the backdrop of macro-economic challenges and heightened global tensions, we made excellent progress in meeting the strategic objectives we have been pursuing for several years. Our intense focus on operational excellence continues to benefit our customers and shareholders as we execute on complex, long-duration programmes like the Astute and Dreadnought submarine programmes, Type 26 and Hunter Class frigates, Typhoon and F-35 fighter jets, electronic warfare systems, and a leading portfolio of land combat vehicles, among many other programmes. This relentless attention to delivering for our customers has positioned the Group as a trusted supplier of advanced technology solutions and industrial capabilities to help customers achieve their critical national and global security missions.
Each of our business sectors contributed to making 2022 a strong year for the Group:
Our Electronic Systems sector was the business unit most impacted by the global shortage of microelectronics, as well as by labour and staffing shortages within our operations and across our supply chain. The team developed operational approaches that helped mitigate the schedule and financial impacts of the supply chain constraints, producing another solid year with continued high margins and a robust order book. We are optimistic that these supply chain pressures will continue to ease in the near term.
Our Platforms & Services sector maintained relatively stable sales, whilst delivering margin expansion in 2022. The impacts from the COVID-19 pandemic negatively affecting the business began to abate in 2022. Our US combat vehicles business has ramped up the production of key programmes like the Armoured Multi-Purpose Vehicle (AMPV) and Amphibious Combat Vehicle (ACV), and our Swedish Hägglunds business recorded outstanding levels of new orders. Margins in our Ship Repair business have improved as we worked to address workforce challenges and operational performance post-COVID.
Our Air sector posted steady sales growth and increased margins, highlighted by the production of Typhoon fighters for Qatar, Germany and other customers, and the delivery of F-35 aft fuselage tail sections. The Tempest technology maturation programme is progressing well, and work continues to plan on the Future Combat Air System (FCAS) Concept & Assessment Phase, a contract we received in 2021. In 2022, the UK government announced plans to lead the development of a new flying combat air demonstrator, set to fly within the next five years, and the GCAP coalition with Japan and Italy. In addition, we renewed a major portion of our Saudi support business for another five years under a UK-Saudi government-to-government agreement.
Our Maritime sector posted good sales growth in 2022, and maintained steady margins, as major submarine and ship programmes continued to ramp up. Margin performance reflected the high volume of Dreadnought sales and increased Company-funded R&D expenditure. The Dreadnought nuclear deterrent submarine and the Global Combat Ship programmes (UK’s Type 26, Australia’s Hunter Class and Canada’s licensed frigate) all grew year-over-year.
The Cyber & Intelligence sector recorded good sales growth and margin performance. The sector benefited from better workforce utilisation and efficiency following the worst of the pandemic. In the US, the Intelligence & Security business continued to demonstrate the value of its differentiated systems integration expertise, providing leading engineering, modelling and simulation capabilities to its customers, expanding in this area through the acquisition of Bohemia Interactive Simulations. In the UK, we established the Digital Intelligence business, bringing together capabilities in cyber, space, intelligence, security and data into one organisation to improve our customer alignment.
Our ESG agenda
We operate our business for the long term and place incorporating sustainable business practices in all aspects of our operations at the core of our approach. This includes, for example, our focus on employee safety and wellbeing, creating a diverse and inclusive workspace, supporting and engaging with the communities in which we operate, and delivering leading apprentice and graduate programmes to prepare the next generation of workers for the future. It also includes our focus on responsible environmental stewardship in our operations. We underpin everything with a robust governance structure that applies to all aspects and required adherence to our Code of Conduct.
We are exceptionally proud of what the Group accomplished in 2022. We hired a record number of UK apprentices and graduates and are particularly pleased that we increased the number of women to 30% of that intake. We progressed our climate resilience programmes and each of our sectors developed decarbonisation roadmaps to outline short-, medium- and long-term activities to support the Group’s net zero ambition by 2030 (Scope 1 and 2). Our employees continue to be engaged in our sustainability programmes, actively participating across many elements. We have made substantial progress in our sustainability agenda over the past several years, and we recognise there is more work to do in the years ahead. These efforts will make us a better, higher-performing company in the future.
Board changes
At the Company’s AGM in May last year, two non-executive directors, Dame Carolyn Fairbairn and Ian Tyler, stepped-down from the Board. At the beginning of November, Lord Mark Sedwill joined the Board as a non-executive director.
New Chair
T his year’s Annual General Meeting of shareholders will mark the conclusion of Sir Roger Carr’s remarkable tenure as Chair. We have named Cressida Hogg as Sir Roger’s successor, completing an intensive search for the most qualified candidate to fill the role. We all look forward to benefiting from her experience, wisdom and energy in the coming years. She joined the Board as a non-executive director and Chair designate on 1 November 2022 and will succeed Sir Roger as Chair at the conclusion of this year’s AGM, due to be held on 4 May 2023.
Executive Committee changes
In the second half of 2022, we welcomed two new members to our Executive Committee (EC). Caitlin Hayden has joined as Group Communications Director following her role as Senior Vice President of Communications at BAE Systems, Inc. in the US. Ed Gelsthorpe also joined the EC as Group General Counsel. Ed has enjoyed a long and varied career in the Group and has served in several senior legal leadership positions.
Summary
As we close the book on 2022, the fundamentals of the business are strong, the outlook is bright, and our team is focused on our purpose – “to serve, supply and protect those who serve and protect us.” While it is tragic that it took a war in Europe to raise the awareness of the importance of defence around the globe, BAE Systems is well positioned to help national governments keep their citizens safe and secure in an elevated threat environment.
For shareholders, the record order intake and increased order backlog, our position on major and enduring programmes, the pension accounting surplus, and management’s continued attention to operational excellence and financial discipline together provide a high level of visibility for sales growth, margin expansion, cash generation and capital returns over the coming years.
Dividends
The Board has recommended a final dividend of 16.6p for a total of 27.0p for the full year. Subject to shareholder approval at the May 2023 Annual General Meeting, the dividend will be paid on 1 June 2023 to shareholders on the share register on 21 April 2023.
Financial glossary
We monitor the underlying financial performance of the Group using alternative performance measures (APMs). These measures are not defined in International Financial Reporting Standards (IFRS) and, therefore, are considered to be non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly, the relevant IFRS measures are also presented where appropriate.
The Group uses these APMs as a mechanism to support year-on-year business performance and cash generation comparisons, and to enhance management’s planning and decision making on the allocation of resources. The APMs are also used to provide information in line with the expectations of investors, and when setting guidance on expected future business performance. The Group presents these measures to the users to enhance their understanding of how the business has performed within the year, and does not consider them to be more important than, or superior to, their equivalent IFRS measures.
Financial performance measures defined by the Group
| Measure | Purpose | Definition | Closest IFRS measure and reconciliation | |||
| Sales | Enables management to monitor the revenue of both the Group’s own subsidiaries as well as its strategically important equity accounted investments, to ensure programme performance is understood and in line with expectations. | Revenue plus the Group’s share of revenue of equity accounted investments, excluding subsidiaries’ revenue from equity accounted investments. | Page 11 | |||
| Underlying EBIT | Provides a measure of operating profitability, excluding one-off events or adjusting items that are not considered to be part of the ongoing operational transactions of the business, to enable management to monitor the performance of recurring operations over time, and which is comparable across the Group. | Operating profit excluding amortisation of programme, customer-related and other intangible assets, impairment of intangible assets, finance costs and taxation expense of equity accounted investments (EBIT), and adjusting items1. The exclusion of amortisation of acquisition-related intangible assets is to allow consistent comparability internally and externally between our businesses, regardless of whether they have been grown organically or via acquisition. | Page 11 | |||
| Return on sales | Provides a measure of operating profitability, excluding one-off events, to enable management to monitor the performance of recurring operations over time, and which is comparable across the Group | Underlying EBIT as a percentage of sales. Also referred to as margin. | Page 11 | |||
| Underlying earnings per share | Provides a measure of the Group’s underlying performance, which enables management to compare the profitability of the Group’s recurring operations over time. | Profit for the year attributable to shareholders, excluding post-tax impact of amortisation of programme, customer-related and other intangible assets, impairment of intangible assets, non-cash finance movements on pensions and financial derivatives, and adjusting items1 attributable to shareholders, being underlying earnings, divided by number of shares as defined for Basic EPS in accordance with IAS 33 Earnings per Share. | Page 13 | |||
| Measure | Purpose | Definition | Closest IFRS measure and reconciliation | |||
| Underlying interest expense | Provides a measure of finance costs associated with the operational borrowings of the Group that is comparable over time. | Net finance costs for the Group and its share of equity accounted investments, excluding net interest expense on post-employment benefit obligations and fair value and foreign exchange adjustments on financial instruments and investments. | Page 46 | |||
| Underlying effective tax rate | Provides a measure of taxation for the Group, excluding one-off items, that is comparable over time. | Taxation expense for the Group and its share of equity accounted investments, excluding any one-off tax benefit/expense, as a percentage of adjusted profit before taxation, being Profit before tax plus taxation expense of equity accounted investments, adjusted for adjusting items1. | Page 47 | |||
| Operating business cash flow | Provides a measure of cash generated by the Group’s operations, to service debt and meet tax obligations, and in turn available for use in line with the Group’s capital allocation policy. | Net cash flow from operating activities excluding taxation and including net capital expenditure (net of proceeds from funding of assets) and lease principal amounts, financial investment and dividends from equity accounted investments. | Page 14 | |||
| Free cash flow | Provides a measure of cash generated by the Group’s operations after servicing debt and tax obligations, available for use in line with the Group’s capital allocation policy. | Operating business cash flow less interest paid (net) and taxation. | Page 14 | |||
| Net debt (excluding lease liabilities) | Allows management to monitor indebtedness of the Group, to ensure the Group’s capital structure is appropriate and capital allocation policy decisions are suitably informed. | Cash and cash equivalents, less loans and overdrafts (including debt-related derivative financial instruments). Net debt does not include lease liabilities. | n/a | |||
| Order intake | Allows management to monitor the order intake of the Group’s own subsidiaries as well as its strategically important equity accounted investments, providing insight into future years’ sales performance. | Funded orders received from customers including the Group’s share of order intake of equity accounted investments. | n/a | |||
| Order backlog | Supports future years’ sales performance of subsidiaries and equity accounted investments. | Funded and unfunded unexecuted customer orders including the Group’s share of order backlog of equity accounted investments. Unfunded orders include the elements of US multi-year contracts for which funding has not been authorised by the customer. | Page 13 | |||
Financial performance measures derived from IFRS
| Measure | Definition |
| Revenue | Income derived from the provision of goods and services by the Company and its subsidiary undertakings. |
| Operating profit | Profit for the year before finance costs and taxation expense. This measure includes finance costs and taxation expense of equity accounted investments. |
| Return on revenue | Operating profit as a percentage of revenue. |
| Basic earnings per share | Basic earnings per share in accordance withInternational Accounting Standard 33 Earningsper Share. |
| Net cash flow from operating activities | Net cash flow from operating activities in accordancewith International Accounting Standard 7 Statementof Cash Flows. |
| Order book | The transaction price allocated to unsatisfied andpartially satisfied performance obligations asdefined by IFRS 15 Revenue from Contracts withCustomers. |
| Net post-employment benefits surplus/deficit | Net International Accounting Standard 19 EmployeeBenefits surplus or deficit, excluding amounts allocated toequity accounted investments. |
1. Adjusting items are items of financial performance which have been determined by management as being material by their size or incidence and not relevant to an understanding of the Group’s underlying business performance. Adjusting items were referred to as non-recurring items in the prior year. No change has been made to the definition of these items, but the name has been changed to reflect that some items could be considered recurring in nature. The Group’s definition of adjusting items includes profit or loss on business transactions, the impact of substantively enacted tax rate changes, and costs incurred which are one-off in nature, for example non-routine costs or income relating to post-retirement benefit schemes, and other items which management has determined as not being relevant to an understanding of the Group’s underlying business performance. Note 2 Segmental analysis and revenue recognition includes more information on those items reported as adjusting in the year.
Income statement summary
| 2022 £m | 2021£m | ||
| Financial performance measures as defined by the Group1 | |||
| Sales | 23,256 | 21,310 | |
| Underlying EBIT | 2,479 | 2,205 | |
| Return on sales | 10.7% | 10.3% | |
| Financial performance measures derived from IFRS2 | £m | £m | |
| Revenue | 21,258 | 19,521 | |
| Operating profit | 2,384 | 2,389 | |
| Return on revenue | 11.2% | 12.2% | |
| Reconciliation of sales to revenue | £m | £m | |
| Sales | 23,256 | 21,310 | |
| Deduct Group’s share of revenue of equity accounted investments | (3,342) | (2,979) | |
| Add Subsidiaries’ revenue from equity accounted investments | 1,344 | 1,190 | |
| Revenue | 21,258 | 19,521 | |
| Reconciliation of underlying EBIT to operating profit | £m | £m | |
| Underlying EBIT | 2,479 | 2,205 | |
| Adjusting items | 91 | 350 | |
| Amortisation of programme, customer-related and other intangible assets | (110) | (86) | |
| Impairment of intangible assets | (1) | (15) | |
| Financial expense of equity accounted investments | (25) | (27) | |
| Taxation expense of equity accounted investments | (50) | (38) | |
| Operating profit | 2,384 | 2,389 | |
| Net finance costs | (395) | (279) | |
| Taxation expense | (315) | (198) | |
| Profit for the year | 1,674 | 1,912 | |
| Exchange rates | 2022 | 2021 | |
| Average | |||
| £/$ | 1.236 | 1.376 | |
| £/€ | 1.173 | 1.163 | |
| £/A$ | 1.778 | 1.832 | |
| Year end | |||
| £/$ | 1.203 | 1.354 | |
| £/€ | 1.127 | 1.191 | |
| £/A$ | 1.773 | 1.863 | |
| Sensitivity analysis | £m | ||
| Estimated impact on sales of a five cent movement in the average exchange rate | |||
| $ | 400 | ||
| € | 55 | ||
| A$ | 25 | ||
1. The purposes and definitions of non-GAAP measures are provided in the Financial glossary on page 8.
2. International Financial Reporting Standards.
Sales increased by £2.0bn to £23.3bn (2021 £21.3bn), a 4% increase on a constant currency basis1, or 9% on a reported basis.
Revenue increased by £1.7bn, 9%, to £21.3bn (2021 £19.5bn).
Underlying EBIT increased to £2,479m (2021 £2,205m), giving a return on sales of 10.7% (2021 10.3%). Excluding the impact of exchange translation, the increase was 5%. On a reported basis this was 12%.
Operating profit remained stable at £2,384m (2021 £2,389m) with the one off gains in 2021 on the sale of Advanced Electronics Company (£132m) and the Filton and Broughton sites (£182m) offset by the gain on sale of the Financial Services business (£94m) and underlying growth in 2022 .
Adjusting items in 2022 reflect a gain of £91m, comprising a £94m gain on the disposal of the Financial Services business in Digital Intelligence and a £13m gain related to past service cost on the pension scheme, offset by £16m of costs related to current and historical business transactions. The credit of £350m in 2021 comprised a £182m gain in HQ on the sale of the Filton and Broughton sites, a £132m gain on disposal of the Advanced Electronics Company and £26m on disposal of a business in our Electronic Systems segment and a net £10m gain relating to historical acquisitions.
Amortisation of programme, customer-related and other intangible assets was £110m (2021 £86m) , the increase being driven by amortisation charges from businesses acquired during 2022 and a full year of cost from those acquired in 2021.
Impairment of intangible assets in 2022 is £1m (2021 £15m).
Net finance costs were £395m (2021 £279m). The underlying interest expense, including share of equity accounted investments, and excluding pension accounting and fair value and foreign exchange adjustments on financial instruments and investments, was £246m (2021 £241m). Net interest expense on the Group’s pension surplus/(deficit), including equity accounted investments, was £38m (2021 67m).
Taxation expense , including equity accounted investments, of £365m reflects the Group’s underlying effective tax rate for the year of 19%, adjusted for the impact of the UK tax rate adjustment . The 2021 charge of £236m reflected the Group’s underlying effective tax rate for the year of 18%, less the impact of a one-off tax benefit of £94m in respect of agreements reached regarding the exposure arising from the April 2019 European Commission decision regarding the UK’s Controlled Foreign Company regime (see note 4).
The calculation of the underlying effective tax rate is shown in note 4 on page 47.
1. Current year compared with prior year translated at current year exchange rates.
| Earnings per share | ||
| 2022 | 2021 | |
| Financial performance measures as defined by the Group1 | ||
| Underlying earnings (excluding the 2021 one-off tax benefit) | £1,728m | £1,523m |
| Underlying earnings per share (excluding the 2021 one-off tax benefit) | 55.5p | 47.8p |
| Underlying earnings (including the 2021 one-off tax benefit) | £1,728m | £1,617m |
| Underlying earnings per share (including the 2021 one-off tax benefit) | 55.5p | 50.7p |
| Financial performance measures derived from IFRS2 | ||
| Profit for the year attributable to equity shareholders | £1,591m | £1,758m |
| Basic earnings per share | 51.1p | 55.2p |
| Reconciliation of underlying earnings to profit for the year attributable to equity shareholders | £m | £m |
| Underlying earnings (excluding the 2021 one-off tax benefit) | 1,728 | 1,523 |
| Adjusting items, post tax | 94 | 279 |
| Amortisation of programme, customer-related and other intangible assets, and impairment of intangibles, post tax | (90) | (84) |
| Net interest expense on post-employment benefit obligations, post tax | (31) | (55) |
| Fair value and foreign exchange adjustments on financial instruments and investments, post tax | (110) | 1 |
| One-off tax benefit (2021) | – | 94 |
| Profit for the year attributable to equity shareholders | 1,591 | 1,758 |
| Non-controlling interests | 83 | 154 |
| Profit for the year | 1,674 | 1,912 |
Underlying earnings per share for the year increased by 9%, excluding the impact of exchange translation, to 55.5p (2021 47.8p excluding the one-off tax benefit).
Basic earnings per share was 51.1p (2021 55.2p). The decrease being due to lower gains on the adjusting items in 2022, and the one-off tax benefit in 2021, partially offset by the benefit of the share buybacks .
Orders
| Financial performance measures as defined by the Group1 | 2022 | 2021 |
| Order intake3 | £37,093m | £21,458m |
| Order backlog3 | £58.9bn | £44.0bn |
Financial performance measures derived from IFRS2
| Order book4 | £48.9bn | £35.5bn |
Order intake 3 increased by £15,635m to £37,093m (2021 £21,458m). Our US-managed businesses had a book‑to-bill ratio5 of more than one.
Order backlog 3 increased by £14.9bn to £58.9bn (2021 £44.0bn).
Order book 4 increased by £13.4bn to £48.9bn (2021 £35.5bn).
1. The purposes and definitions of non-GAAP measures are provided in the Financial glossary on page 8.
2. International Financial Reporting Standards.
3. Including share of equity accounted investments.
4. Order book represents the transaction price allocated to unsatisfied and partially satisfied performance obligations as defined by IFRS 15 Revenue from Contracts with Customers.
5. Ratio of Order intake to Sales.
| Cash flow | ||
| 2022 £m | 2021£m | |
| Financial performance measures as defined by the Group1 | ||
| Free cash flow | 1,950 | 1,864 |
| Financial performance measures derived from IFRS2 | £m | £m |
| Net cash flow from operating activities | 2,839 | 2,447 |
| Reconciliation from free cash flow to net cash flow from operating activities | £m | £m |
| Free cash flow | 1,950 | 1,864 |
| Add back Interest paid, net of interest received | 237 | 224 |
| Add back Taxation | 365 | 234 |
| Operating business cash flow1 | 2,552 | 2,322 |
| Add back Net capital expenditure and financial investment | 519 | 209 |
| Add back Principal element of lease payments and receipts | 227 | 207 |
| Deduct Dividends received from equity accounted investments | (94) | (57) |
| Deduct Taxation | (365) | (234) |
| Net cash flow from operating activities | 2,839 | 2,447 |
| Net capital expenditure and financial investment | (519) | (209) |
| Principal element of finance lease receipts | 9 | 10 |
| Dividends received from equity accounted investments | 94 | 57 |
| Interest received | 32 | 23 |
| Acquisitions and disposals | (38) | 185 |
| Net cash flow from investing activities | (422) | 66 |
| Interest paid | (269) | (247) |
| Equity dividends paid | (802) | (777) |
| Purchase of own shares | (788) | (368) |
| Partial disposal of shareholding in subsidiary undertaking | – | 28 |
| Dividends paid to non-controlling interests | (166) | (202) |
| Principal element of lease payments | (236) | (217) |
| Cash inflow from derivative financial instruments (excluding cash flow hedges) | 533 | 61 |
| Cash outflow from derivative financial instruments (excluding cash flow hedges) | (205) | (149) |
| Movement in cash collateral | – | (18) |
| Net cash flow from loans | (400) | (367) |
| Net cash flow from financing activities | (2,333) | (2,256) |
| Net increase in cash and cash equivalents | 84 | 257 |
| Add back Net cash flow from loans | 400 | 367 |
| Foreign exchange translation | (478) | (50) |
| Other non-cash movements | 131 | (16) |
| Decrease in net debt (excluding lease liabilities) | 137 | 558 |
| Opening net debt (excluding lease liabilities) | (2,160) | (2,718) |
| Net debt (excluding lease liabilities) | (2,023) | (2,160) |
1. The purposes and definitions of non-GAAP measures are provided in the Financial glossary on page 8.
2. International Financial Reporting Standards.
Free cash flow was £1,950m (2021 £1,864m ) after shareholder returns of £1,590m (2021 £1,145m). The strong performance this year was driven by continued good operational performance and working capital management.
Net cash inflow from operating activities was £2,839m (2021 £2,447m). The inflow reflects operational business performance, and working capital management.
Taxation payments were £365m (2021 £234m).
Net capital expenditure and financial investment was £519m (2021 £209m), increasing mainly as a result of the proceeds from the Filton and Broughton sites offsetting the expenditure in 2021 .
Dividends received from equity accounted investments amounted to £94m (2021 £57m).
Cash flows in respect of acquisitions and disposals comprises a net outflow of £38m. This was primarily due to the cash outflow on the acquisition of Bohemia Interactive Simulations of £146m, being offset by the cash received on the sale of the Financial Services business of £101m. The cash inflow in 2021 in respect of acquisitions and disposals, of £185m was primarily in relation to the divestment of the Advanced Electronics Company.
Equity dividends paid in 2022 represents the 2021 final dividend (£480m) and the 2022 interim dividend (£322m).
Share buybacks saw an outflow of £788m in the year. The full 2021 programme of £500m completed in February 2022, of which £130m was spent in 2022. In July, a further three-year, £1.5bn share buyback programme was announced. During the year, payments of £658m were made towards share buybacks in relation to this three-year programme.
Dividends paid to non-controlling interests were £166m (2021 £202m), primarily reflecting payments made by our partially-owned subsidiaries in the Kingdom of Saudi Arabia.
There was a net cash inflow from derivative financial instruments of £328m (2021 £88m net outflow), arising from rolling hedges relating to balances within the Group’s subsidiaries and equity accounted investments .
Foreign exchange translation primarily arises in respect of the Group’s US dollar-denominated borrowing.
Net debt
| Components of net debt (excluding lease liabilities) | 2022 £m | 2021 £m |
| Cash and cash equivalents | 3,107 | 2,917 |
| Debt-related derivative financial instruments (net) | 112 | (16) |
| Loans – non-current | (5,189) | (4,604) |
| Loans and overdrafts – current | (53) | (457) |
| Net debt (excluding lease liabilities) | (2,023) | (2,160) |
The Group’s net debt(excluding lease liabilities) at 31 December 2022 was £2,023m, a net decrease of £137m from the position at the start of the year. This is primarily a result of strong Free cash flow performance, partially offset by increased shareholder returns through dividends and share buybacks .
Cash and cash equivalents of £3,107m (2021 £2,917m) are held primarily for the repayment of debt securities, pension funding when required, payment of the 2022 final dividend, funding of further share buybacks under the £1.5bn programme announced in July 2022, and management of working capital.
Accounting policies
Changes in accounting policies
No new or amended standards which became applicable for the year ending 31 December 2022 had a material impact on the Group or required the Group to change its accounting policies.
Segmental review
The Group reports its performance through six reporting segments.
| Year ended 31 December 2022 | ||||||||||||
| As defined by the Group | Derived from IFRS | |||||||||||
| Sales £m | Underlying EBIT £m | Return on sales % | Operating business cash flow £m | OrderIntake1£m | OrderBacklog1£bn | Revenue £m | Operating profit £m | Return on revenue % | Net cash flow from operating activities £m | Order book £bn | ||
| Electronic Systems | 5,057 | 838 | 16.6 | 650 | 5,444 | 8.1 | 5,057 | 747 | 14.8 | 860 | 6.7 | |
| Platforms & Services | 3,688 | 326 | 8.8 | 525 | 5,719 | 8.1 | 3,598 | 322 | 8.9 | 633 | 7.7 | |
| Air | 7,698 | 849 | 11.0 | 1,140 | 14,042 | 24.4 | 6,286 | 809 | 12.9 | 1,202 | 17.4 | |
| Maritime | 4,598 | 356 | 7.7 | 235 | 9,716 | 17.2 | 4,484 | 352 | 7.9 | 418 | 16.6 | |
| Cyber & Intelligence | 2,205 | 232 | 10.5 | 154 | 2,443 | 2.1 | 2,205 | 291 | 13.2 | 191 | 1.4 | |
| HQ2 | 420 | (122) | (152) | 426 | – | 10 | (137) | (100) | – | |||
| Deduct Intra-group | (410) | (697) | (1.0) | (382) | (0.9) | |||||||
| Deduct Taxation3 | (365) | |||||||||||
| Total | 23,256 | 2,479 | 10.7 | 2,5524 | 37,093 | 58.9 | 21,258 | 2,384 | 11.2 | 2,839 | 48.9 |
1. Including share of equity accounted investments.
2. HQ comprises the Group’s head office activities, together with a 49% interest in Air Astana.
3. Taxation is managed on a Group-wide basis.
4. At a Group level, the key cash flow metric is Free cash flow (see Financial glossary on page 8). In 2022, Free cash flow was £1,950m (2021 1,864m).
Segmental review: Electronic Systems
Electronic Systems, with 16,900 employees1, comprises the US- and UK ‑ based electronics activities, including electronic warfare systems, navigation systems, electro-optical sensors, military and commercial digital engine and flight controls, precision guidance and seeker solutions, next-generation military communications systems and data links, persistent surveillance capabilities, space electronics and electric drive propulsion systems.
Operational and strategic key points
– Opened state-of-the-art facilities in Manchester, New Hampshire; Cedar Rapids, Iowa; and Austin, Texas.
– Cumulatively more than 1,200 electronic warfare systems delivered on F-35 programme.
– Deliveries continue of next-generation EW Eagle Passive Active Warning Survivability System to support upgrade of US Air Force F-15 platform and testing on F-15E and F-15EX test aircraft.
– Selected to design, test and supply energy management components for GE Aviation’s megawatt class hybrid electric propulsion system supporting NASA’s Electrified Powertrain Flight Demonstration project.
– The Long-Range Precision Guidance Kit programme reached a critical benchmark with the successful completion of its structural survivability test in the US Army’s Extended Range Cannon Artillery.
– Delivered the 3,000th Multi-functional Information Distribution System Joint Tactical Radio System through our Data Link Solutions joint venture with Collins Aerospace.
Financial performance
| Financial performance measures as defined by the Group | Financial performance measures derived from IFRS | |||||
| 2022 | 2021 | 2022 | 2021 | |||
| Sales | £5,057m | £4,491m | Revenue | £5,057m | £4,491m | |
| Underlying EBIT | £838m | £766m | Operating profit | £747m | £715m | |
| Return on sales | 16.6% | 17.1% | Return on revenue | 14.8% | 15.9% | |
| Operating business cash flow | £650m | £774m | Cash flow from operating activities | £860m | £951m | |
| Order intake1 | £5,444m | £4,923m | Order book | £6.7bn | £5.7bn | |
| Order backlog1 | £8.1bn | £7.2bn |
– Results reflect the impact of the global shortage of microelectronics, as well as labour and staffing shortages within the operations and supply chain.
– Despite these challenges, sales grew by 2%2, driven by growth in the Electronic Combat Solutions business.
– Return on sales of 16.6% was in line with 2022 guidance, and steady on a constant currency basis.
– Operating business cash flow has decreased due to the timing of programme executions.
– Key orders secured on C4ISR, Electronic Combat and Precision Strike and Sensing Solutions.
– Expect supply chain pressures to continue to ease in the near term, to allow enhanced growth and margin performance.
Operational performance
Electronic Combat Solutions
The F-35 Lightning II programme is delivering on Lot 15 electronic warfare (EW) systems and has delivered a cumulative total of over 1,200 EW systems. We are also supporting the Block 4 modernisation efforts under multiple contracts worth over $957m (£796m), and operating on our next Performance-Based Logistics contract worth $290m (£241m) to provide critical sustainment support for the F-35 EW system.
Under a contract from Boeing, we continue to deliver our next-generation EW Eagle Passive Active Warning Survivability System (EPAWSS) to support the upgrade of the US Air Force F-15 platform and testing on F-15E and F-15EX test aircraft. In July, EPAWSS modifications began on two operational US Air Force F-15Es and work began on the $36m (£30m) low-rate initial production phase two contract.
We continue to collaborate with Boeing in the pursuit of all F-15 EW upgrade opportunities, both domestic and international.
We are also under contract to supply the Digital Electronic Warfare System on new and existing F-15 aircraft for multiple international customers with a value of $91m (£76m).
On Long Range Anti-Ship Missile (LRASM) we began delivering on Lot 4 in November. This marked the first delivery of the new LRASM 1.1 configuration developed under the completed Diminishing Material Sources contracts.
Due to the sensitive nature of electronic combat systems and technology, many of our programmes are classified. These include our work as a world leader in electronic warfare providing next-generation defence technology.
Countermeasure & Electromagnetic Attack Solutions
Our Limited Interim Missile Warning System programme received $62m (£52m) in US Army funding for the fourth production lot order, bringing production lot order totals to $250m (£208m).
The Compass Call programme is executing contracts valued at more than $1bn (£0.8bn), focused on the cross-decking of prime mission equipment to the new EC-37B aircraft while sustaining and upgrading the existing EC-130H fleet. We successfully tested third-party applications on Compass Call’s Small Adaptive Bank of Electronic Resources (SABER) technology, enabling fielding of SABER on the EC-130H. We delivered key components for the US Air Force’s first EC-37B Compass Call aircraft, which is targeted to initially field in 2024, and have started sustainment preparation.
We received approximately $14m (£12m) for the Smart D2â„¢ technology as part of the US Navy’s ALE-47 Common Carriage programme, representing the first purchase of the technology by the Department of Defense. Smart D2â„¢ technology increases expendable payload capacity, incorporates a smart stores communication interface and enables the future replacement of key elements without replacing an aircraft’s entire ALE-47 system to support real-time updates to next-generation countermeasures.
Precision Strike & Sensing Solutions
The APKWS® guidance kit programme continues to execute production under an Indefinite Delivery, Indefinite Quantity contract, with awards worth over $48m (£40m) received in the year. Multiple test events in 2022 demonstrated new capabilities, proving enhanced capabilities in support of US and allied forces’ precision strike missions.
The Long-Range Precision Guidance Kit programme reached a critical benchmark with the successful completion of its structural survivability test in the US Army’s Extended Range Cannon Artillery, securing funding for further development and bringing the total contract value to $99m (£82m).
The Terminal High Altitude Area Defense (THAAD) seeker programme provides the THAAD interceptor with critical targeting capability to defeat ballistic missile threats against the US and our allies. The programme is currently in full-rate production, with a follow-on order worth $209m (£174m). To keep pace with the evolving threat, BAE Systems has an ongoing effort valued at $150m (£125m) to design and prototype the next-generation THAAD infrared seekers.
We continue to execute a contract with Space Systems Command to develop an M-Code Increment II Miniature Serial Interface GPS receiver for ground embedded applications with next generation Application Specific Integrated Circuit technology valued at more than $278m (£231m).
C4ISR Systems
We are executing key programmes that provide full spectrum communications to meet customer needs for information sharing to support joint all-domain command and control. We have completed a system requirements review for the Airborne High Frequency Radio Modernization programme awarded in early 2022, and we have delivered the 3,000th Multi-functional Information Distribution System Joint Tactical Radio System through our Data Link Solutions Joint Venture with Collins Aerospace.
To bring our disruptive technology to the space domain, we are performing on the agreement to launch an experimental satellite. We continue to deliver radiation-hardened electronics to support space programmes of national importance, such as the James Webb Space Telescope, and are developing the next generation of radiation-hardened Application Specific Integrated Circuit libraries.
We transitioned our Mobility Air Forces Automated Flight Planning Service operations to Cloud One to align with the US Air Force’s transformation objectives, providing increased storage, computing, processing flexibility and faster software upgrades.
Controls & Avionics Solutions
Airline traffic and business travel continue to improve, resulting in returning demand for Original Equipment Manufacturer deliveries and aftermarket services.
The business remains focused on supporting Boeing’s aircraft deliveries and developing the integrated flight control electronics and remote electronic units for the new Boeing 777X aircraft, with the 777X flight control system performing as expected during flight testing.
Our full-authority digital engine controls, offered through the FADEC International and FADEC Alliance (joint ventures), continue to perform well across our portfolio. The business, through FADEC Alliance, is supporting CFM International’s Revolutionary Innovation for Sustainable Engines programme by maturing new technologies that will enable a reduction in both fuel consumption and emissions. On the military side, GE achieved a successful First Engine to Test milestone in June, with our T901 FADEC.
We are engaged in developing the energy storage systems and controls for all-electric aircraft, particularly in the emerging air mobility segment. Specifically, we are executing the design, test and supply of advanced battery packs for GE Aviation’s megawatt class hybrid electric propulsion system in support of NASA’s Electrified Powertrain Flight Demonstration project. In October, Supernal selected BAE Systems to define the architecture of a lightweight, fly-by-wire system for its autonomous-capable aircraft.
Deliveries of F-35 vehicle management computers and active inceptor systems have successfully ramped up, and we supported the first US Depot stand-up. We continue to advance our autonomous control technologies through successful crewed-uncrewed teaming flight tests under a US Department of Defense programme. Separately, our development of an advanced vehicle control system for the UK’s Dreadnought submarine programme remains on plan.
Power & Propulsion Solutions
As the global transit industry accelerates efforts to decarbonise, interest grows for our low and zero emission propulsion solutions. This year, US-based bus manufacturers Hometown Manufacturing and ElDorado National both chose our latest Gen3 electric drive technology to power their zero emission vehicles. Hometown Manufacturing will power their battery electric trolley buses and ElDorado National will power both hydrogen fuel cell electric buses and battery electric buses with Gen3 products. Also using our Gen3 electric drive system, Nova Bus continues to win battery electric bus bids in cities such as New York and Houston in the US, as well as Halifax, Nova Scotia in Canada.
Our new Gen3 power electronics incorporate advanced materials enabling smaller, lighter, more efficient systems with modular and scalable components. The flexibility of our systems increases our ability to address a broader range of markets, such as heavy-duty vocational vehicles and maritime vessels. Global fast ferry manufacturer, Green City Ferries, selected our Gen3 electric drive systems to power both their zero emission hydrogen fuel cell and battery electric ferries and Glas Ocean Electric chose our systems to power fishing fleets in North America and the Caribbean.
Looking forward
Forward-looking information for the Electronic Systems reporting segment is provided on page 34.
1. Including share of equity accounted investments.
2. Constant currency basis.
Segmental review: Platforms & Services
Platforms & Services, with 12,200 employees1, has operations in the US, UK and Sweden. It manufactures and upgrades combat vehicles, weapons and munitions, and delivers services and sustainment activities, including naval ship repair, and the management and operation of government-owned munitions facilities.
Operational and strategic key points
– Significant increase in order intake largely driven by the Hägglunds business.
– US Army selected the BAE Systems Beowulf for its Cold Weather All-Terrain Vehicle (CATV) programme to replace the Small Unit Support Vehicles, with a contract estimated to be worth up to $278m (£231m) for 110 vehicles.
– Submitted a proposal for the design concept phase for the US Army’s Optionally Manned Fighting Vehicle programme.
– Our US shipyards marked continued performance improvements and secured $1.2bn (£1.0bn) in ship modernisation and repair orders.
– Received a five-year contract extension for Ordnance Systems Radford operations through to 2026 and a one-year extension through to 2024 for the Holston facility and supply contracts.
– Contract received worth $1.4bn (£1.2bn) to supply 152 CV9035 infantry fighting vehicles to replace the Slovakian Army’s infantry fighting vehicle fleet.
– Czech government selected CV90 to replace its infantry fighting vehicle fleet. Contract expected in first half of 2023.
Financial performance
| Financial performance measures as defined by the Group | Financial performance measures derived from IFRS | |||||
| 2022 | 2021 | 2022 | 2021 | |||
| Sales | £3,688m | £3,395m | Revenue | £3,598m | £3,318m | |
| Underlying EBIT | £326m | £259m | Operating profit | £322m | £252m | |
| Return on sales | 8.8% | 7.6% | Return on revenue | 8.9% | 7.6% | |
| Operating business cash flow | £525m | £287m | Cash flow from operating activities | £633m | £351m | |
| Order intake1 | £5,719m | £3,236m | Order book | £7.7bn | £5.3bn | |
| Order backlog1 | £8.1bn | £5.6bn |
– Sales remained steady on a constant currency basis, as guided to for the year.
– Return on sales increased to 8.8%, as the impacts from the COVID-19 pandemic began to abate in 2022.
– T he increase in operating business cash reflects timing of customer advances, primarily from orders in the Hägglunds business.
Operational performance
Combat Mission Systems
Combat Mission Systems is achieving consistent production throughput, at heightened volumes, across multiple programmes. Investments in facilities and new manufacturing technologies, including automation and robotic welding, are delivering positive returns as the business moves to full rate production across a number of platforms.
We delivered Amphibious Combat Vehicles (ACVs) to the US Marine Corps under low-rate initial production (LRIP) contracts totalling approximately $600m (£499m) for 116 vehicles. This completed the LRIP phase, and we transitioned to delivery on three full-rate production contracts for an additional 185 vehicles at a value of $973m (£809m). We received a $35m (£29m) contract for the design and development of a new ACV recovery variant in March, an $88m (£73m) contract in August to build three ACV-30 Production Representative Test Vehicles (PRTVs) and are working on additional variants. The new amphibious swim facility at York is now operational. In addition, we delivered an advanced Command, Control, Communication and Computers/Uncrewed Aerial Systems (ACV C4/UAS) variant of the ACV to the US Marine Corps, which will evaluate it as a capable, cost-effective Government-Off-The-Shelf solution for the Advanced Reconnaissance Vehicle programme.
On the US Army’s Armoured Multi-Purpose Vehicle (AMPV) programme, we have received LRIP contracts worth $1.3bn (£1.1bn). Deliveries of the five variants continued in 2022 in accordance with the December 2021 schedule. We are also working under a July 2021 contract worth up to $600m (£499m) for AMPV System Technical Support (STS). We expect to receive a full-rate production contract for the AMPV programme in the first half of 2023. In support of this production award, the US Department of Defense has indicated its intention to procure over 100 additional AMPV vehicles to replace the 200 in-service M113 armoured personnel carriers provided to Ukraine.
On the M109A7 programme, contracts worth a total of $1.5bn (£1.2bn), all 133 LRIP vehicles and over 300 full-rate production vehicles have been delivered. We are now executing on fiscal year 2020 and 2021 full-rate production contracts totalling $750m (£624m) for 176 vehicles, including a $299m (£249m) contract received in June. We have also received early order material awards totalling $24m (£20m) for fiscal year 2022 full-rate production.
Work on the Bradley family of vehicles continues, and we received a five-year $383m (£318m) contract from the US Army to perform technical and sustainment support services for its fleet of Bradley Fighting Vehicles and M993 Multiple Launch Rocket System carriers. We continue the contract to upgrade Bradley vehicles to the A4 configuration valued at $809m (£673m) for 459 vehicles and spares. We are working on a five-year follow-on production contract to add about $258m (£215m) for 80 vehicles through 2023, with quantities to be determined for the remaining four years.
We are executing on a $32m (£27m) prototype contract received in 2020 from the US Army’s Rapid Capabilities and Critical Technologies Office to integrate a hybrid-electric drive system onto Bradley Fighting Vehicles.
We continue to produce and sustain the US Army’s M88 recovery vehicles under previously awarded contracts, and develop next-generation M88A3 prototypes under a $336m (£279m) contract.
In November 2022, we submitted a competitive proposal for the design and prototype phase for the US Army’s Optionally Manned Fighting Vehicle programme.
We are producing Mk 41 Vertical Launching System (VLS) missile canisters for the US Navy under awards totalling $433m (£360m), with a total potential value of more than $624m (£519m). We are also working on a $164m (£136m), five-year contract as the Navy’s design agent for missile canisters and the mechanical portion of the VLS.
Ordnance Systems
We continue to operate and modernise the US Army’s Radford and Holston ammunition plants under a total of $1.5bn (£1.2bn) in modernisation contracts. The Army awarded a five-year contract extension, through December 2026, for Radford operations; and a one-year contract extension, through December 2024, for the current Holston Army Ammunition Plant facility and supply contracts.
At Holston, modernisation activities continue, including the construction of a Weak Acetic Acid Recovery Plant, and the design, construction and commissioning of new production facilities. Contracts totalling $211m (£175m) were awarded in the year for energetics facilities at Holston.
At Radford, construction of a modern nitrocellulose facility has been completed, and the facility is in the commissioning and product qualification phase.
US Ship Repair
During the year, we received contracts with a cumulative value of $1.2bn (£1.0bn) for maintenance and modernisation across our Jacksonville, Florida; Norfolk, Virginia; and San Diego, California shipyards.
The US Ship Repair business continues to conduct modernisation and maintenance activities for the US Navy’s non-nuclear fleet. Our shipyards were impacted by delayed starts to ship repair contracts due to operational naval tasking, coupled with delays to pending contract awards and higher than usual levels of customer-added work to existing contracts. Our investments in operational excellence and additional resources are delivering benefits as we address several challenged ship modernisation programmes.
BAE Systems Hägglunds
To accommodate significant new orders received over the past 24 months, the business continues to expand its workforce and facilities.
The US Army selected our Beowulf unarmoured all-terrain vehicle and we received a contract worth up to $278m (£231m) for 110 Cold Weather All-Terrain Vehicles. The Beowulf will replace the original BV206 Small Unit Support Vehicles.
The team is executing on a contract to upgrade and extend the life of the Netherlands CV9035 fleet, including the integration of an Active Protection System, anti-tank guided-missile system, and the addition of rubber band tracks to increase effectiveness. In addition, we continue to conduct mid-life upgrades on the Dutch CV90 fleet under a contract worth more than $500m (£416m), which includes the development and testing of a new turret. The first newly-upgraded CV90 was unveiled in October 2022, at our facility in northern Sweden.
In March 2022, we received a new contract to equip 20 CV90s with the Mjölner mortar system for Sweden, following the delivery of the first 40 systems on time, at cost and to quality. We have secured a $90m (£75m) contract to develop two new CV90 variants for the Swedish Army as part of the ongoing RENO programme.
While our work continues to extend the life of 186 Swiss Army CV90s to 2040, the first four of 20 CV90 vehicles for Norway were delivered on time and at cost in May under a contract exceeding $50m (£42m). We also received a seven-year contract in January for support, sustainment and readiness of 144 Norwegian CV90s. We also continue to upgrade and extend the life of CV90s in the Finnish Army fleet under an ongoing contract.
Slovakia and the Czech Republic selected CV90 in separate evaluations to replace their legacy infantry fighting vehicle fleets. Both contracts are supported by overarching government-to-government agreements with the Swedish government. Contract negotiations with the Government of Slovakia have completed and a contract was signed on 12 December at a value of $1.4bn (£1.2bn) for 152 CV9035 infantry fighting vehicles. We expect the contract negotiations with the Czech Republic to culminate in the first half of 2023.
The business is also working under contract from Sweden for 127 BvS10s worth approximately $200m (£166m), as well as sustaining and maintaining readiness to various customers of the BvS10 and CV90 fleets.
In December, Sweden, Germany, and the United Kingdom announced they have signed an agreement with BAE Systems to purchase 436 BvS10 all-terrain vehicles under a joint procurement in support of Arctic operations for the Collaborative All-Terrain Vehicle (CATV) programme, which could grow to a total of more than 10,000 all-terrain vehicles in the next 10 years. Sweden is procuring an additional 40 BvS10s in a separate contract, valued at approximately $50m (£42m).
BAE Systems Bofors
The 24 additional ARCHER systems for Sweden have been delivered, and we continue a number of ARCHER pursuits in our home and export markets. ARCHER was selected as one of two systems under consideration by the Swiss government for its future artillery system.
We are under multiple export contracts to deliver 40Mk4 and 57Mk3 naval gun systems, including five 57Mk3s and ten 40Mk4s for the UK Royal Navy’s Type 31 frigates, as well as 12 40Mk4s to the Belgian and Dutch navies, and new 57mm (Mk110) gun systems to the US Navy and Coast Guard.
Weapon Systems UK
Production of 145 M777s for the Indian Army was completed in December, with all guns delivered to India under a $542m (£451m) Foreign Military Sales contract. In light of recent global events, we have received a number of inquiries about the availability of future M777 systems, as well as spare parts and support. In conjunction with the US Government, we are evaluating potential options to restart production.
FNSS
FNSS, our land systems joint venture based in Turkey, continues to produce 8×8 wheeled armoured vehicles for the Royal Malaysian Army. Production continues on medium-weight tanks for delivery to Indonesia, and work has begun for specialist engineering vehicles for the Philippines.
Multiple contracts for the Turkish Armed Forces worth in excess of €700m (£621m) are progressing. These include contracts for assault amphibious vehicles, weapons carriers and special purpose 8×8 and 6×6 vehicles. In December 2022, a follow on contract was signed to modernise a further 52 armoured combat vehicles for the Turkish Armed Forces, in addition to the 133 armoured combat vehicles already delivered or in production.