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Trading update

Chief Executive
Today, we issued an update on the Company’s near term performance. Overall our business environment is improving and we continue to win new orders, with good prospects for the future. Read the full blog post from our CEO, Ian King.
 
Hawk AJT
Hawk AJT
Today, we issued an update on the Company’s near term performance.
 
Overall the Company is operating in an improving business environment.  Defence and security remain the first priority of governments in all of our markets. In the UK, budget commitments to defence spending provide greater certainty and stability for the Government’s Strategic Defence and Security Review.  And in the US, the recently approved Congressional two-year budget deal is expected to result in defence spending increasing above the previous Budget Control cap.
 
In recent months we have continued to win new business:
 
  • We have agreed the requirement for 22 Hawk Advanced Jet Trainer Aircraft, associated ground equipment and training aids for the Royal Saudi Air Force, which form part of an enhancement to the Kingdom’s pilot training capacity.
  • We were awarded the contract to provide the digital electronic warfare system for the US Air Force’s EPAWSS programme to upgrade up to 450 F-15 aircraft – with an expected contract value of over $1 billion over the life of the programme.
  • We’re also continuing to achieve good growth in adjacent commercial markets, including cyber security and commercial electronics.
 
In September, the Italian and Kuwait governments announced they had reached agreement for the supply of 28 Typhoon aircraft. This is great news for us and our Eurofighter partners and is further confirmation that the aircraft is attractive and competitive in export markets.  It is worth noting that, subject to the formal contract, we expect the Kuwait delivery schedule from the Italian Typhoon final assembly line to commence around the end of this decade.
 
Typhoon is a very advanced aircraft. It’s performing well with our customers and the partner governments continue to enhance its capabilities. We are confident of future Typhoon export success and we have not changed our planning assumptions on the number of aircraft we expect to sell.  
 
We have, however, made a decision to reduce our Typhoon production rates to align with delivery schedules for current and expected orders.  This ensures production continuity, allowing us to continue to bid competitively for future orders.
 
That decision does unfortunately mean a proposed reduction of up to 371 roles from a workforce of around 13,000 employees in our Military Air & Information business in the UK. We will explore opportunities to mitigate compulsory job losses. We don’t take any decision that impacts our workforce lightly, but we believe this is the right thing to do to avoid any break in production and provide a more sustainable and competitive position for Typhoon manufacturing.  
 
In Australia, whilst we welcomed the announcement by the Australian Government of its intention to launch a naval shipbuilding strategy, there remains no near-term prospect of manufacturing work in our Williamstown shipyard in Melbourne, beyond current orders.  We recently delivered the second Landing Helicopter Dock ship and the final Air Warfare Destroyer blocks are expected to be completed in 2016.
As a result, we have announced further manufacturing headcount reductions at Williamstown and a non-cash, one-off impairment of the shipyard assets, which will be charged to the Group's 2015 results.
 
In our US business, following high external interest, in April we announced a strategic review of manpower and services businesses within our Intelligence & Security sector. The review has now been completed and despite third-party interest, we have determined that retaining these businesses will deliver greater value. I’m pleased to say that these businesses are continuing to perform well and win new orders.
 
In summary, our 2015 earnings will include the impact of action to reduce the production rate for Typhoon aircraft and an accounting charge related to the value of our Melbourne shipbuilding facilities, partially offset by an adjustment of certain overseas tax provisions.  We continue to expect good sales growth in 2015 and our robust order book underpins our confidence in the future prospects for the business. The actions we have announced today will put us in the best possible position to secure future work and provide a more stable, long-term future for our employees.
 
 
 
top Ian King
Ian King Chief Executive 12 November 2015