We have recently published our 2015 Annual Report including full commentary on our financial and operational performance so I’ll focus on the key points today, before commenting on 2016 performance to date and outlook as announced earlier today.
In 2015, sales increased to £17.9bn, £1.3bn higher than 2014. Underlying earnings per share of 40.2 pence were 2.2 pence higher than in 2014. Order intake of £14.9bn was broadly similar to 2014. Operating cash inflow of £0.7bn and year end net debt of £1.4bn were at the higher end of our guidance range.
We continue to deliver value to our shareholders with a healthy dividend of 20.9 pence per share for the year, marking the twelfth consecutive year we have increased our dividend.
We ended 2015 with a large order backlog of £36.8bn, providing good visibility and confidence in the prospects of the business.
The environment for defence spending in our key UK and US markets is improving, however, global economic conditions are still exerting pressure on government finances.
The UK government’s Strategic Defence and Security Review published last November was a positive outcome. It included an increased £178bn defence equipment and support plan over the next ten years and important commitments to key programmes. We are now working constructively with the MOD to implement the SDSR.
Major contracts awarded during the year included an £859m Type 26 Global Combat Ship demonstration contract and the full £1.3bn contract for the fifth Astute Class submarine for the Royal Navy.
The Typhoon aircraft’s capabilities continue to evolve with the integration of the Captor E-Scan radar. In November, we announced a slow-down in the build rate for Typhoon assemblies to align with the timing of current and expected orders, ensuring continuous production as we bid for future orders.
Technology is a key and sustainable attribute of this business. Recognising the potential of an emergent new technology we agreed to acquire a 20 per cent interest in Reaction Engines. The company is working on a radical new aerospace engine concept with the potential to revolutionise hypersonic flight and the economics of space access.
Operational highlights - US
In the US, the Bipartisan Agreement is expected to enhance the funding environment for our US businesses through 2017.
Our US-managed electronics business performed well and grew in 2015, with new business wins including contracts to upgrade the electronic warfare systems for the US Air Force’s F-15 and electronics for US special operations C-130J aircraft. As a major supplier of electronic equipment on the global F-35 programme, we benefit from the commitment to increase production output for both US and international customers. We also continue to grow in commercial electronics, supplying flight and engine controls.
Following approaches by potential buyers for our US-based manpower and services activities, we undertook a strategic review in 2015.
Recognising the good performance of the business, the review concluded in November that greater value could be derived from retaining the business within our portfolio. Our US land business also performed solidly in 2015, supporting our expectations for an improved outlook from a now stabilised base.
As a leading supplier of US Navy ship repair services, we are responding to the Navy’s redeployment of ships to increase its presence on the Pacific coast. This led to headcount reductions at some East Coast facilities, while we are investing in a new drydock facility to increase capacity at our San Diego shipyard.
Operational highlights – International markets and cyber security
In the Kingdom of Saudi Arabia we reached agreement for the provision of a further 22 Hawk Advanced Jet Trainer aircraft for the Royal Saudi Air Force, which form part of an enhancement to the Kingdom’s pilot training capacity.
In Australia, we successfully delivered the second of the two Landing Helicopter Dock ships to the Royal Australian Navy. However, with no near-term prospect of shipbuilding work we announced further headcount reductions and a non-cash impairment of the carrying value of the Williamstown yard.
Our Applied Intelligence business achieved sales and order growth of around 30 per cent in 2015 and we expect to see good growth continue as cyber security becomes increasingly important to governments and commercial customers.
Current trading and outlook
Whilst economic and geo-political conditions remain volatile, we have started the year with good momentum and the business is performing well. In 2016 and beyond, we are well placed to continue to generate attractive returns for shareholders.
Trading in 2016 has been consistent with the expectations we set out at the 2015 full-year results announcement and the Group's outlook remains unchanged. In 2016, underlying earnings per share are expected to be approximately 5 per cent to 10 per cent higher than adjusted underlying earnings per share of 36.6 pence in 2015.
Highlights in the year to date include the following:
- The UK and French governments announced a new €2bn (£1.6bn) project to build an unmanned combat air system demonstrator, securing high-end engineering jobs.
- We were awarded a £472m extension to the Type 26 Global Combat Ship demonstration phase contract by the UK Ministry of Defence.
- We were awarded a $149m (£105m) contract for the production of new Assault Amphibious Vehicles for Japan.
- The UK MOD also awarded contracts valued at approximately £300m to support the UK’s fleet of Hawk fast jet trainer aircraft until 2020.
- We won a $182m (£128m) contract to refurbish 262 CV90 vehicles for the Swedish Army.
- Our Italian Eurofighter partner signed a contract to supply 28 Typhoon aircraft to Kuwait, which will result in approximately £1bn of work for BAE Systems.
- We were awarded a £118m contract to build engineering and training facilities at RAF Marham in Norfolk, UK in readiness for the arrival of the UK's first F-35 Lightning II aircraft.
- The MBDA joint venture, in which BAE Systems has a 37.5 per cent interest, has continued to win new orders, with our share to date valued at approximately £182m.
Our important role
We support our customers to protect national security, critical infrastructure and key commercial interests. We have a highly talented and diverse workforce of 82,500 people in over 40 countries, with the engineering expertise to tackle our customers’ most complex challenges. We continue to invest in our business and people and in the technology and skills we need to drive the business forward.
Company and customer funded investment in next-generation research and technology programmes reached around £1.3bn in 2015. We continue to invest in the communities in which we operate, and in 2015 the Company and our employees contributed more than £11m to charities and not-for-profit organisations.
BAE Systems continues to champion and instil responsible behaviour across the Group. During 2015, a revised Code of Conduct was launched and cascaded to employees via face-to-face briefings. The safety of our employees, and anybody who works on, or visits, our sites, is also a key priority.
In summary, BAE Systems provides some of the world’s most advanced defence, aerospace and security solutions. We have demonstrated resilience through an extended period of economic challenge and our business environment is improving. In 2016 and beyond, we are well placed to continue to generate attractive returns for our shareholders.
I’ll now hand back to the Chairman to commence the formal proceedings of today’s meeting.