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half-year results
Thanks to the outstanding efforts of our employees across the Group, we have delivered a strong first half performance which underlines our confidence in the full year guidance for top line growth, margin expansion and three-year cash targets. We are well positioned for sustained growth in the coming years and are ramping up our investments in advanced technologies to deliver capabilities for our customers in the face of an evolving threat environment. Following the decisive action taken to accelerate our UK deficit pension payments in 2020, the committed investment in the business coupled with the good operational performance, we are driving enhanced cash generation. This enables us today to announce a 5% increase in the interim dividend as well as initiating a new share buyback programme of up to £500m. Charles Woodburn, Chief Executive, BAE Systems
Financial performance measures as defined by the Group
  Six months ended 30 June 2021 Six months ended 30 June 2020 Year ended 31 December 2020
Sales £10,035m £9,871m £20,862m
Underlying EBIT £1,028m £849m £2,037m
Underlying earnings per share
excluding one-off tax benefit (2021 only) 21.9p 17.5p 44.3p
including one-off tax benefit (2021 only) 24.8p 17.5p 44.3p
Free cash flow
excluding £1bn pension contrib. (2020 only) £461m £(110)m £1,367m
including £1bn pension contrib. (2020 only) £461m £(1,110)m £367m
Net debt (excluding lease liabilities) £(2,745)m £(2,038)m £(2,718)m
Order intake £10,582m £9,339m £20,915m
Order backlog £44.6bn £46.1bn £45.2bn
Dividend and post-employment benefits
  Six months ended 30 June 2021 Six months ended 30 June 2020 Year ended 31 December 2020
Dividend per share 9.9p 9.4p 23.7p
Dividend per share - in respect of 2019 performance     13.8p   13.8p
Group’s share of the net post-employment benefits deficit £(2.4)bn £(6.0)bn £(4.5)bn
Financial performance measures defined in IFRS
  Six months ended 30 June 2021 Six months ended 30 June 2020 Year ended 31 December 2020
Revenue £9,339m £9,180m £19,277m
Operating profit £1,303m £808m £1,930m
Basic earnings per share 31.3p 16.7p 40.7p
Net cash flow from operating activities £623m £(727)m £1,166m
Order book £35.5bn £37.2bn £36.3bn

Guidance for 2021

Whilst the Group is subject to geopolitical uncertainties and there remain uncertainties arising from the COVID-19 pandemic, progress continues in combatting the virus under the vaccination programme in our major markets and our good operational performance underlines our overall confidence in the full year guidance.
Our full year guidance, issued earlier this year, was provided on the basis of an exchange rate of $1.35:£1. Our results for the first half year have been reported at an average rate of $1.39:£1. While the pound has strengthened we still expect the Group’s sales to grow in the 3% to 5% range over 2020. If these higher currency rates persist in line with the first half average rates, we expect reported sales to be at the lower end of this guidance range.
Given the strong operational performance to date, we continue to expect reported underlying EBIT to increase in the range of 6% to 8% over 2020 and underlying EPS to increase in the range of 3% to 5% over 2020, even if the higher than guided $:£ exchange rate continues to year-end. This therefore represents an underlying improvement to the original guidance.
Notwithstanding the higher $:£ exchange rate, we continue to expect to deliver in excess of £1bn of free cash flow this year and this excludes the benefit of the sale of the Filton and Broughton sites referred to in this report. We also maintain our three-year cash flow target for 2021 to 2023 of in excess of £4bn.
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 derived from International Financial Reporting Standards for the six months ended 30 June 2021 are provided in the Group financial review on pages 11 to 17.

Financial highlights

Financial performance measures as defined by the Group
  • Sales increased by 6% on a constant currency basis to £10.0bn.
  • Underlying EBIT of £1,028m increased by 27% on a constant currency basis.
  • Underlying earnings per share increased by 25% to 21.9p, excluding the impact of the one-off tax benefit. The Group’s underlying effective tax rate (excluding the one-off tax benefit) for the first half of the year was 18%.
  • Free cash inflow of £461m (2020 outflow of £110m, excluding the £1bn pension contribution).
  • Net debt (excluding lease liabilities) at £2,745m (£2,718m at 31 December 2020).
  • Order backlog of £44.6bn (£45.2bn at 31 December 2020).
Financial performance measures derived from IFRS
  • Revenue increased by 2% to £9.3bn.
  • Operating profit increased by 61% to £1,303m.
  • Basic earnings per share increased to 31.3p (2020 16.7p).
  • Net cash inflow from operating activities of £623m (2020 £727m outflow).
  • Order book of £35.5bn (£36.3bn at 31 December 2020).
Dividend and share buyback
The directors have declared an interim dividend of 9.9p per share in respect of the half year ended 30 June 2021. This dividend will be payable on 30 November 2021. The directors have also approved a new share buyback programme of up to £500m over the next 12 months, which will commence immediately.
Post-employment benefits deficit 
The Group’s share of the pre-tax accounting post-employment benefits deficit decreased to £2.4bn (31 December 2020 £4.5bn). 
One-off tax benefit
A one-off tax benefit of £94m was recognised in the period, in respect of agreements reached regarding the exposure arising from the April 2019 European Commission decision regarding the UK’s Controlled Foreign Company regime.

Operational and strategic key points

We have remained focused on employee safety, whilst adjusting to evolving positions in our key markets to deliver on customers’ critical programmes, and to progress the strategic priorities of the Group.
Electronic Systems
  • Cumulatively, over 900 F-35 electronic warfare systems have been delivered on the F-35 programme as at the end of the first half.
  • Terminal High Altitude Area Defense (THAAD) seeker production is at full rate levels.
  • Contract valued at more than $325m (£235m) received to deliver Increment 1 M-Code devices.
  • Demand in the Controls & Avionics Solutions and Power & Propulsion Solutions commercial markets has started to recover from COVID-19 impacts.
Platforms & Services (US)
  • Process and automation improvements continue to support the ramp up of combat vehicle production.
  • The M109A7 vehicle is consistently delivering at full rate production levels.
  • Deliveries of all five variants of Armored Multi-Purpose Vehicles to the US Army continue, and a new contract worth up to $600m (£434m) for AMPV sustainment and technical support was received in early July.
  • Amphibious Combat Vehicle deliveries to US Marine Corps continue, with design and development under way for new mission variants.
  • Bradley vehicle upgrade work continues on contracts for 459 vehicles, and deliveries continued through the half year.
  • BAE Systems Hägglunds is poised to grow having secured multiple contracts for CV90 and BvS10 work.
  • The US Ship Repair business was significantly impacted by the COVID-19 pandemic, but has seen some recent signs of recovery. Orders totalling $478m (£346m) were received in the period.
  • A $164m (£119m) competitive award was secured as design agent for the mechanical portion of the US Navy’s Vertical Launch System. 
  • Production of F-35 rear fuselage assemblies is ramping up to full rate levels. 70 assemblies have been completed in the period.
  • The Qatar Typhoon and Hawk programme continues to progress well, with agreement also reached to base Qatari Hawk aircraft at RAF Leeming.
  • Work has commenced on the German Typhoon programme.
  • The future electronically scanned European Common Radar Solution is progressing in line with the Typhoon ten-year plan.
  • The sector continues to work closely with industry partners and the UK government to continue to fulfil contractual support arrangements in Saudi Arabia.
  • The Tempest next-generation Future Combat Air System (FCAS) programme continues to progress well with the initial Concept & Assessment Phase contract secured.
  • In Australia the Hunter Class Frigate programme continues through prototyping with continued engagement with the Commonwealth to determine the shipbuilding strategy and timing.
  • Sale of Advanced Electronics Company to Saudi Arabia Military Industries completed in February. 
  • Construction of the first three City Class Type 26 frigates for the Royal Navy is now under way.
  • The fifth Astute Class submarine, HMS Anson, was launched in April.
  • Construction of the first two Dreadnought Class submarines continues to advance.
  • Contracts worth more than £1bn were received under the UK Ministry of Defence’s Future Maritime Support Programme.
  • Maritime Services provided support and preparation capabilities to the UK’s Carrier Strike Group ahead of its first operational deployment.
  • RBSL secured the Challenger 3 Main Battle Tank contract.
Cyber & Intelligence
  • The US-based Intelligence & Security business continues to increase its bid pipeline, perform on existing contracts and win new orders.
  • Applied Intelligence performed well, benefiting from high levels of customer demand and ongoing improvements in operational efficiency.
  • Operating business cash flow benefited from the proceeds of the Filton and Broughton sites of £250m, as well as our ongoing focus on liquidity.
  • Air Astana returned to profitability in the first half of the year.

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