Another set of excellent full year results announced by BAE Systems and a statement from the company that provides confidence and reassurance that the company has huge further potential as it moves forward and the ability to deliver consistent long term growth as it continues to invest in new technologies, research and development, capital investment and its people.
Of the FY22 results announced this morning CEO Charles Woodburn said:
“We’ve delivered another year of strong results across the Group. Our employees have done an outstanding job to effectively manage supply chain and inflationary pressures whilst delivering critical capabilities and driving efficiencies for our customers.
“Our diverse geographic footprint, deep customer relationships and highly relevant, leading defence technologies mean we’re well positioned to support national security requirements in an elevated threat environment.
“Our record orders and financial performance give us confidence in delivering long-term growth and to continue investing in new technologies, facilities and thousands of highly skilled jobs, whilst increasing shareholder returns.”
In detail, BAE Systems achieved record performance with revenue up 4.4% to £23.3bn, Underlying EBIT up 5.5% to £2.47bn, Underlying EPS up 9.5% to 55.5p and higher than anticipated Free Cash Flow of £1,950 million. Margins further improved with the important return on sales indicator increasing by 20 basis points to 10.7%. The company ended the year with net debt of £2bn which was down a touch on last year and the full year dividend was raised 7.6% to 27p. Finally, in respect of financial highlights, £0.8bn was spent on shares repurchases the company has reported that the Group pension schemes are in a net accounting surplus.
Another very important indicator of BAE Systems strength is the huge increase in order intake last year and which rose by over £15bn on the previous year to £37bn. The order backlog now stands at £58.9bn up from a reported £44bn in FY21.
Innovation is a constant driver within and across BAE Systems and it is a delight to observe. Innovation is the powerhouse behind the new technologies that will be required for tomorrows wars and tomorrows defence needs.
In respect of Operational Performance FY22 was a spectacularly good one and the divisional highlights are:
- Opened state-of-the-art facilities in Manchester, New Hampshire; Cedar Rapids, Iowa; and Austin, Texas.
- Maintained electronic warfare system deliveries across F-35, F-15E and F-15EX and other aircraft platforms.
- Selected to design energy management components for GE Aviation’s megawatt class hybrid electric propulsion system, supporting NASA’s Electrified Powertrain Flight Demonstration project.
Platforms & Services
- Maintained high production tempo on combat vehicles.
- Major new orders and production increases for CV90 and BvS10 vehicles at Hägglunds.
- Ship Repair business activity continues to rebound from COVID-19 related headwinds.
- UK, Japanese and Italian governments reached agreement to merge Tempest sixth generation fighter with Japanese F-X programme to form the Global Combat Air Programme (GCAP).
- Delivered first eight of 24 Eurofighter Typhoons to Qatar.
- F-35 rear fuselage production at full rate levels, with 150 assemblies completed in the year.
- Astute Boat five, HMS Anson, exited our Barrow shipyard to commence sea trials in February 2023.
- First Type 26 frigate entered the water and is being outfitted at Scotstoun shipyard in Glasgow.
- Continued progress on UK’s Dreadnought submarine programme and Australia’s Hunter Class frigates programme.
Cyber & Intelligence
- Established Digital Intelligence by combining cyber, space, data analysis, digital transformation, and other advanced capabilities into one unit.
- Strong order intake, revenue growth and programme execution in both Intelligence & Security and Digital Intelligence.
- Completed the acquisition of BISim, which provides cutting-edge virtual training for allied militaries.
If one had to sum up BAE Systems it would be to say that this is a company that today, just as it has for several years past, determined to build a track record of strong and consistent operational and financial performance. This is a company that has consistently invested in its business, its people and thus, in its own future. Over the past three years the company has spent £3000 million in education and skills and hired 3,000 apprentices. Opportunities for young people in BAE Systems have never been better and the company today is taking on record numbers of graduate trainees and apprentices.
BAE Systems has a long history of never promising what it cannot deliver. The company is engaged in many areas of international defence and security and while forward guidance is based on expectations of good further top line revenue growth, margin expansion and strong cash generation this is a company that will never over promise. Further margin expansion remains high on the priority list and this will come through further risk retirement and efficiency initiatives, engagement in higher margin activities, business mix and ES. BAE Systems takes it ESG agenda very responsibly across the various environmental, innovation and green technologies, diversity and supply chain partnerships with suppliers, customers and as I have seen myself in the case of Birmingham University, development partnerships.
Consistency is an essential part of good delivery and BAE Systems places huge emphasis on giving the customer what it is that they want and more. The strategy remains based on organic growth, expanding margins and delivering higher and sustained cash conversion for the benefit of shareholders, customers and all stakeholders.
BAE Systems moves through 2023 and into 2024 and beyond in a very strong financial position, not only in regard of its balance sheet and financial performance records established but also in the visibility of many multi-year/multi-decade programmes and contracts that are underpinned within a massive and still growing £59bn order backlog.
This is a global company but also one with many home markets. AUKUS, the partnership established between the US, UK and Australia is another superb example of additional potential for a company such as BAE Systems – one that has huge knowledge and experience of building nuclear powered submarines.
The list of current and future programmes that BAE Systems is involved is far too long for me to list here. But I would remind of the ongoing in-build brilliance of the Type 26 Frigate programme and what this has led onto in the Australian Hunter programme and Canadian frigate programme design, F-35 build and potentially huge long term maintenance and support that BAE Systems and its partners will be responsible for, Challenger 3 with RBSL, Sweden where BAE Systems builds the hugely successful CV90 and in respect of Air, Typhoon and where not only are Germany and Spain investing in the next generation of this superb combat jet but that here in the UK considerable work to enhance radar capability to this workhorse of the RAF is currently under way.
Typhoon continues to have considerable future potential and the Tempest/Global Combat Air Programme (GCAP) is yet another indication of potential strength for the longer-term future. To this I would add the investment now going in to modernise and expand BAE’s Scotland based shipbuilding facilities, Astute and Dreadnaught Submarine programmes at Barrow in Furness, the increased requirement for munitions and complex weapons and the continuation of growth in BAE Systems huge US activities. These are but a few of many examples of BAE Systems continuing growth potential for the future and which I will write on over the coming year.
This is a fantastic company and one that with its diversity of interests, global portfolio and the many strengths that the company has across the whole spectre of defence and security, I could write on for hours. It is a company that not only has superb management, people and a strategy that has continued to deliver but it is also one that thankfully, never stands still.
CHW (London – 23rd February 2023)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785