2016 Financial Results

“2016 was a good year for BAE Systems. Our strategy is well defined; we have a large order backlog, long-term programme positions, strong programme execution and a well-balanced portfolio. With an improved outlook for defence budgets in a number of our markets, we are well placed to continue to generate attractive returns for shareholders.” Ian King, Chief Executive

Financial highlights

Financial performance measures as defined by the Group
  • Sales increased by £1.1bn to £19.0bn, almost all of which was due to exchange translation.
  • Underlying EBITA increased to £1,905m, or 7% on a constant currency basis.
  • Underlying earnings per share of 40.3p, 7% higher than adjusted 2015 underlying earnings per share of 37.8p5, in line with guidance.
  • Operating business cash flow increased by £323m to £1,004m.
  • Net debt of £1.5bn.
  • Order intake3 increased by £7.5bn to £22.4bn.
  • Order backlog3 increased by £5.2bn to £42.0bn.
Financial performance measures defined in IFRS 2
  • Revenue increased by £1.0bn to £17.8bn, almost all of which was due to exchange translation.
  • Operating profit increased to £1,742m, or 10% on a constant currency basis.
  • Basic earnings per share of 28.8p.
  • Net cash flow from operating activities increased by £421m to £1,229m.
Other financial highlights
  • Group’s share of the pre-tax accounting net pension deficit increased by £1.6bn compared with 31 December 2015 to £6.1bn, largely unchanged from 30 June 2016.
  • Final dividend of 12.7p per share making a total of 21.3p per share for the year, an increase of 2% over 2015.
1. 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. For alternative performance measure definitions see glossary below.
2. International Financial Reporting Standards.
3. Including share of equity accounted investments.
4. Re-presented to reclassify interest paid from operating to investing activities.
5. 2015 underlying earnings per share (40.2p) excluding tax provision releases ( 4.3p) and adjusted to 2016 exchange rates (+1.9p).

Operational and strategic review

  • Awarded a $146m (£118m) engineering and manufacturing development contract for the US Air Force’s Eagle Passive Active Warning Survivability System as a follow-on to the technology maturation and risk reduction phase.
  • On the F-35 combat aircraft programme, delivered the 250th electronic warfare suite in the US, received orders for additional Low-Rate Initial Production in the US and UK, and selected to provide maintenance, repair, overhaul and upgrade services to support a range of aircraft system components in the UK and Australia for the Europe and Pacific regions, respectively.
  • On Typhoon, partnership arrangement for support to the UK fleet expected to be worth at least £2.1bn over a ten-year period and £1.0bn of orders for BAE Systems’ workshare on 28 aircraft for Kuwait.
  • Continued provision of support agreed under the Saudi British Defence Co-operation Programme to the Royal Saudi Air Force and Royal Saudi Naval Forces through to 2021.
  • To support the US Navy’s re-balance to the Asia-Pacific region, a new dry dock arrived in our San Diego shipyard in December.
  • In maritime in the UK, £472m extension to the Type 26 frigate demonstration phase contract, £287m contract for two additional Offshore Patrol Vessels, including support services for the five-ship programme, and £1.3bn of funding for the Dreadnought Class submarine programme, including design, initial manufacture, materials and facilities investment.
  • Roll-out of the first prototype Armored Multi-Purpose Vehicle for the US Army and delivery of the first prototype Amphibious Combat Vehicles for the US Marine Corps.
  • Secured a $542m (£439m) contract to provide 145 M777 lightweight howitzers to India in January 2017.
  • Continued growth in commercial cyber security and counter-fraud from investment in product development, and sales and marketing.
  • Judicial Review proceedings into the process followed by the UK government in granting defence export licences to the Kingdom of Saudi Arabia are under way with a judgment expected in the near future.

Guidance for 2017

Group guidance
For the year ending 31 December 2017, we expect the Group’s underlying earnings per share to be 5% to 10% higher than full-year underlying earnings per share in 2016 of 40.3p.*
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 2016 are provided on below.
Segmental guidance

Electronic Systems:

  • Mid-single-digit sales growth is expected in 2017 driven by a number of electronic warfare contracts, with 75% of projected sales in the 2016 closing order backlog.
  • Margins 1 are expected to be at the top end of a 13% to 15% range.

Cyber & Intelligence: comprising the US Intelligence & Security sector (71% of Cyber & Intelligence sales in 2016) and Applied Intelligence:

  • Low single-digit sales growth is expected in 2017, with stable sales in Intelligence & Security and double-digit growth in Applied Intelligence across each of its three divisions.
  • Margins 1 are expected to improve to within a 6% to 8% range, following the high level of product development investment in the Applied Intelligence business over the last two years.

Platforms & Services (US):

  • Sales are expected to be stable, with the completion of CV90 deliveries to Norway being offset by the increasing volumes from the US vehicles and munition businesses. Of this sales guidance, 75% is within the 2016 closing order backlog.
  • Another year of margin 1 improvement, to a range of 8% to 9%, is expected in 2017, absent further charges on the commercial shipbuilding contracts.

Platforms & Services (UK):

  • Sales are expected to be 5% lower. On Typhoon, European and Saudi deliveries are largely complete and this is only partly offset by trading on the contracts to Oman and Kuwait, along with the increased F-35 volumes. Almost 95% of this sales guidance is within the 2016 closing order backlog.
  • Margins 1 are expected to be at the lower end of a 10% to 12% range, having absorbed the impact of increased pension service costs.

Platforms & Services (International):

  • Sales growth of around 5% is expected in 2017, with increased levels of support to the Salam Typhoon aircraft and higher delivery volumes from MBDA. Close to 90% of the sales guidance is within the 2016 closing order backlog.
  • Margins 1 are expected to be at a similar level to those in 2016.


  • HQ costs are expected to be similar to those in 2016.
  • Underlying finance costs are expected to be slightly lower, absent the incremental net present value charges seen in 2016.
  • The underlying effective tax rate for 2017 is expected to increase slightly from 21% to around 22%, with the final rate dependent on the geographical mix of profits.
* Assuming a US$1.25 to sterling exchange rate.