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Market update

Image of hexagon texture 2020
The Company has provided the following update to the financial markets in light of the ongoing COVID-19 pandemic.
Current Business Priorities
 
Given the critical nature of the products and services that we provide to a number of nations, the key role we play in national economies and the local communities in which we operate, the Group has number of near-term priorities:
 
  1. Protect the wellbeing of our employees
  2. Meet customer priorities and support them as they face unique challenges
  3. Support our supply chain in dealing with pandemic related disruption
  4. Preserve and protect our capabilities  and the strength of the Group’s business which is underpinned by our £45bn Order backlog and programme positions
  5. Ensure that we maintain liquidity and balance sheet strength and thereby remain robustly funded in anticipation of a potentially extended period of uncertainty. 
 
Our Approach
 
Our primary focus through this challenging period is to ensure that our employees are safe, our facilities are maintained securely, and the long-term future of our business is protected. A core part of this approach involves working closely with our customers and suppliers to support them in these difficult times. This will enable us to increase production for any affected operations safely and as quickly as possible once permitted to do so. This will allow us to minimise any interruption of supply to our customers and be in a position to support the economic recovery phase for the countries in which we operate.
 
The Company is in a strong position with a large order backlog, mainly consisting of long-term Government contracts across a wide international customer base. We have a strong balance sheet, a high quality, diverse portfolio and supply chains closely aligned to the nations in which we operate. At the same time, the Company is taking a number of actions to enhance its resilience and position the business for an eventual return to a full operational tempo. 
 
Management Actions
 
We have mobilised our business continuity plans in response to the COVID-19 outbreak with governance and communication structures to facilitate rapid decision-making. Significant steps have already been taken in line with relevant government guidance and policy to safeguard the health and wellbeing of our employees and customers. These include working from home for a significant proportion of colleagues throughout the Group, with a number of sites on reduced operational levels. New procedures have been implemented at our sites including enhanced cleaning regimes, safe working distance measures and distribution of protective equipment to our teams on site while they continue to meet the critical priorities of our customers. We have already seen an exceptional response from our employees, customers and supply chains and are liaising closely with our customers and suppliers to understand any changes in requirements and priorities during this time.
 
Trading Update
 
In the first quarter of 2020, the pandemic has had no material impact on the financial performance of the Group. We have received significant awards recently on the M109A7 self-propelled howitzer programme, in US ship repair and on the THAAD missile programme in Electronic Systems.
 
As the second quarter commences, we are seeing more significant disruptions. We continue to assess the impact on our business of the measures announced by national governments, together with the actions the Group has taken to support customers and suppliers. In parallel, cost control measures have been implemented to help limit the financial impact of disruptions to the business.
 
Liquidity position
 
The liquidity of the Company is strong, with significant gross cash and access to a £2bn Revolving Credit Facility committed to April 2024, along with other short and long-term debt options.
 
From this position of strength the Group does typically have a working capital cash outflow in the first half of the year and actions are being taken internally to optimise cash flow while maintaining operational resilience and capability. Additionally we are discussing funding profiles with our key customers to ensure our supply chain remains strong and there is a continuity on critical defence and security programmes.
 
Final Dividend Payment, Executive Director Remuneration and AGM
 
The liquidity and business profile of the Group is strong. This remains however reliant on the goodwill of our customers and the financial strength of our supply chain to maintain the drumbeat of production commitments both now and in the future.
 
Against a background of significant government and social challenges, and the uncertainty as to the duration of the resulting disruption, the Board believes it is in the Company`s best interests, having regard to all our stakeholders’ interests, to defer the decision on the 13.8 pence per share dividend proposed by the Board when announcing the Company’s 2019 results in February.
 
We recognise the importance of the dividend to our shareholders and whilst it remains our intention to pay a dividend, the timing of any payment will be contingent on prevailing macro-economic and social conditions over the coming months. An update on the dividend payment will be provided at the Half Year results on 30 July 2020, at which time the Board will also review remuneration of the Executive Directors.
 
The Company's AGM will be held on 7 May 2020 as scheduled.  As public gatherings of more than two people are currently prohibited, shareholders (other than two senior executives) will not be able to attend the meeting in person.  Shareholders will still be able to vote by proxy using the usual online and postal facilities.   A poll will be taken on each of the resolutions put to the meeting and the results will be posted on the Company website.  Given the deferral of the proposed dividend payment, a resolution to approve a final dividend will not be put to Shareholders at the AGM. 
 
Acquisitions
 
The proposed acquisitions of the Collins Aerospace Military Global Positioning System business and Raytheon’s Airborne Tactical Radios business are still expected to complete in the coming months. As previously announced, appropriate financing is already in place to enable completion. Both acquisitions are conditional on the completion of the Raytheon and United Technologies Corporation merger, now due to complete on 3 April 2020, as well as other customary closing conditions and required US regulatory approvals.  
 
Pension
 
The latest estimates show that the UK pension deficit funding position has not materially changed since the year-end despite the market volatility in equities and bonds. The Group’s assumptions on the funding of its pension schemes are prudent and appropriately reflect expected long-term asset returns and the term of the liabilities. The latest valuation of the Group’s Main Scheme is dated 31 October 2019 and subject to market conditions, we intend to proceed with the funding contributions agreed as part of this valuation as outlined in the Preliminary Results Announcement.
 
Guidance Update
 
Whilst the COVID-19 pandemic will impact our previous guidance for 2020, at this stage it is not possible to predict either the duration of the disruption or its impact on the 2020 outturn. A further update will be provided when appropriate.
 
Ref. 031/2020