BAE Systems plc (LON:BA) has announced its latest trading update.
Highlights
· Group guidance confirmed in line with half-year upgrade
· Strong order intake maintained with c.£10bn booked since half-year
· Good operational performance and effective supply chain management
· Share buyback programme ongoing
Charles Woodburn, BAE Systems Chief Executive, said:
“Trading has been in line with the upgraded guidance we issued at the time of our 2023 half-year results. We are delivering another year of good sales and earnings growth, together with strong cash flow generation.
“Order flow on new and existing programmes, renewals on incumbent positions and progress with our opportunity pipeline remains strong. These underpin our confidence and visibility for good top line growth in the coming years, and we continue to reinforce our value compounding model with a sharp focus on operational performance and disciplined capital allocation.”
Guidance
The full year 2023 guidance across all metrics is unchanged from the upgraded guidance provided at the 2023 half-year results presentation
| 2023 guidance on the basis of $1.24: £1 | |
| Sales | +5 to 7% (2022: £23,256m) |
| Underlying EBIT | +6 to 8% (2022: £2,479m) |
| Underlying EPS | +10 to 12% (2022: 55.5p) |
| Free Cash Flow (FCF) | >£1.8bn (2022: £1,950m) |
Order Flow
We are securing another strong year of order intake with over £30bn booked year to date. Notable awards in the second half of the year so far have been:
· £3.9bn of funding for the next phase of SSN-AUKUS submarine programme
· $797m to begin AMPV full rate production, which includes prior funding for early order materials
· c.$800m under multiple awards for Bradley fighting vehicles and upgrades
· c.$500m award for ARCHER artillery systems from Sweden
Increasing exposure to structurally growing defence markets
Our global footprint and diverse product portfolio are key competitive advantages. The high order flow reflects continued customer confidence in our ability to deliver important capabilities at a time of heightening geopolitical risk. As we have previously highlighted, most major defence programmes are long cycle in the build and subsequent support phases. As a result, contracts secured now will be executed over many years providing us with long-term visibility over top line growth.
UK next generation submarine – SSN-AUKUS
The £3.9bn next generation submarine award is a prime example of the long cycle nature of customer commitments. The funding for this vitally important submarine programme provides for development work out to 2028. This phase includes the detailed design of the submarine and long-lead procurement for the build phase over the coming decades. The award also paves the way for significant infrastructure expansion at our Barrow site together with investment in critical skills and the supply chain to support the wider submarine enterprise.
Investment and industrial collaborations
Investment in the business and industrial collaborations are critical to support our growth aspirations and form part of our robust operating business model. Developments so far this year include:
· Plans advanced for expanding UK submarines facilities
· Progressing on a new ship building facility in Glasgow
· New investment in munitions manufacturing capacity
· Increased our UK apprentice intake in the Air and Maritime Sectors
· Approximately 6% net increase in employees in the nine months to 30 September 2023
· Progressing on Global Combat Air Programme industrial collaboration discussions
· Increased self-funded R&D year-on-year
· A robust and growing network of suppliers and industry partners to complement our Hägglunds and Bofors supply chain and production capacity across multiple product lines
Ball Aerospace Acquisition
The regulatory process is progressing well and we continue to target a completion date in the first half of 2024.
ESG update
We will present an ESG update and progress report on 25 January 2024.
Balance sheet and capital allocation
The 2023 interim dividend of 11.5 pence per share will be paid on 30 November 2023 and we are maintaining a good cadence on the current £1.5bn buyback programme announced in July 2022. This means that total cash returned to shareholders this year (including the 2022 final dividend) is expected to be c.£1.4bn.
Board and Executive Committee
As previously announced:
· Angus Cockburn joined the Board as a Non-Executive Director with effect from 6 November 2023 and became a member of the Audit Committee with effect from 7 November 2023
· Chris Grigg will retire from the Board on 31 December 2023 and will be succeeded as Senior Independent Director by Nicole Piasecki with effect from 1 January 2024
After long and successful careers, two members of our Executive Committee are retiring at the year-end. The Air Sector Managing Director Cliff Robson will be succeeded by Simon Barnes, who is currently leading our business in the Kingdom of Saudi Arabia. In Digital Intelligence, David Armstrong will be succeeded by Andrea Thompson who currently leads the Air Sector’s Europe and International business.
Summary investment points
As we have reinforced throughout the year, our confidence in delivering our value compounding investment case is supported by:
· Strong programme performance underpinned by a robust operating model
· Continued investment in the business to support future growth
· Large order backlog that provides the foundation for growth over the medium term
· Leading technology solutions for our customers
· Broad geographic presence
· Diversity of capabilities across all security domains
· Ample opportunity pipeline to further enhance growth
· Strong balance sheet with good cash generation
· Value focused capital allocation
2023 Preliminary Results
BAE Systems will announce its preliminary results for the year ending 31 December 2023 on
21 February 2024.
