Annual Report 2018 Who We Are
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Annual Report 2018 Who we are At BAE Systems, our advanced defence technology protects people and national security, and keeps critical information and infrastructure secure. We search for new ways to provide our customers with a competitive edge across the air, maritime, Segmental land and cyber domains. 43 review We employ a skilled workforce of 85,800 people1 in more than 40 countries, and work closely with local partners to support economic development by transferring knowledge, How our skills and technology. 22 business works Further information can be found online by visiting baesystems.com 220 Shareholder information 1. Including share of equity accounted investments. Contents Strategic report Governance Financial statements Who we are Directors’ report Group accounts Our business at a glance 02 Chairman’s governance letter 72 Preparation 142 Strategic report Our key products and services 04 Directors’ duties 74 Consolidated income statement 144 Group financial highlights 06 Board governance 76 Consolidated statement Operational and strategic highlights 08 Board of directors 78 of comprehensive income 145 Chairman’s letter 10 Board information 80 Consolidated statement of changes in equity 145 Chief Executive’s review 13 Governance disclosures 81 Consolidated balance sheet 146 Group strategic framework 18 Audit Committee report 83 Consolidated cash flow statement 147 Our markets 19 Corporate Responsibility Committee report 87 Notes to the Group accounts 148 How our business works 22 Nominations Committee report 90 Our people 24 Remuneration Committee report 92 Company accounts Our technology 26 Annual remuneration report at a glance 95 Company statement of comprehensive Governance Our values and responsible behaviour 28 Annual remuneration report 97 income 212 Our partners and key relationships 31 Preface to the Directors’ Company statement of changes in equity 212 remuneration policy 116 Responsible sourcing and impact 33 Company balance sheet 213 Directors’ remuneration policy 117 Group financial review 35 Notes to the Company accounts 214 Guidance for 2019 42 Statutory and other information 130 Segmental review 43 Electronic Systems 44 Independent Auditor’s report 135 Cyber & Intelligence 48 Platforms & Services (US) 52 Financial statements Air 56 Maritime 60 Segmental looking forward 64 How we manage risk 66 Our principal risks 68 Operational and Segmental Board 08 strategic highlights 43 review 76 governance Cautionary statement: All statements other than statements of historical fact included in this document, including, without limitation, those regarding the financial condition, results, operations and businesses of BAE Systems and its strategy, plans and objectives and the markets and economies in which it operates, are forward-looking statements. Such forward-looking statements, which reflect management’s assumptions made on the basis of information available to it at this time, involve known and unknown risks, uncertainties and other important factors which could cause the actual results, performance or achievements of BAE Systems or the markets and economies in which BAE Systems operates to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. BAE Systems plc and its directors accept no liability to third parties in respect of this report save as would arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with Schedule 10A of the Financial Services and Markets Act 2000. It should be noted that Schedule 10A and Section 463 of the Companies Act 2006 contain limits on the liability of the directors of BAE Systems plc so that their liability is solely to BAE Systems plc. BAE Systems Annual Report 2018 01 Our business BAE Systems has strong, established positions in the air, maritime, land at a glance and cyber security domains. 52% 26% Sales1 by Sales1 by domain domain H G A E A Air F Maritime – Manufacture, development, – Design and manufacture E upgrade and in-service support B of submarines of Typhoon combat aircraft D D – Design and manufacture B – Workshare partner for the C of complex warships C design and manufacture of major – Provision of naval ship repair sub-assemblies and systems, and A Typhoon 21% and modernisation services A Submarines 29% provision of support for F-35 B F-35 Lightning II 12% in the US B Complex warships 17% C Defence electronics 25% Lightning II combat aircraft C US naval ship repair 18% D Tornado 13% – Provision of in-service support D UK naval support 10% – Design, manufacture and E Commercial avionics 9% to surface ships and facilities support of electronics equipment F Weapon systems 8% management in the UK E Other 26% for military aircraft G Hawk 5% – Design and manufacture of H Other 7% – In-service support of Tornado naval gun systems, torpedoes, combat aircraft radars, and naval command – Manufacture, upgrade and and combat systems in-service support of Hawk trainer aircraft – Development of next-generation Employees by location unmanned air systems and defence information systems 85,800 Our Employees2 24 people – Design, manufacture and support of avionics equipment for commercial aircraft – Design and manufacture of missiles and missile systems through a 37.5% 34,100 interest in MBDA 30,500 UK US 6,300 Saudi Arabia 4,100 Australia 10,800 Other 1. Re venue plus the Group’s share of revenue of equity accounted investments. 2. Including share of equity accounted investments. 3. Includes £0.7bn (4%) of sales generated under the Typhoon workshare agreement with Eurofighter Jagdflugzeug GmbH. BAE Systems 02 Annual Report 2018 1 2018 sales 2018 revenue Our key products 04 and services Group financial £18,407m £16,821m 35 review Strategic report 17% 5% Sales1 by Sales1 by domain domain Governance Land D A Cyber C A – Design, manufacture, upgrade – Supply of cyber, intelligence and support of tracked and and security capabilities to amphibious combat vehicles US government agencies C B – Manufacture of ammunition B – Supply of cyber, intelligence and precision munitions for and security capabilities to UK Financial statements US, UK and other armed forces A Combat vehicles 38% and other government agencies A US government 42% – Design and manufacture B Munitions 20% – Supply of defence-grade B UK and other 35% of electric and hybrid electric C Commercial 9% cyber solutions for the governments drive systems D Weapon systems/other 33% commercial market C Commercial 23% – Design and manufacture of artillery systems and missile launchers for US, UK and other armed forces Sales1 by destination Sales1 by activity Sales1 by reporting segment BAE Systems has leading positions in BAE Systems has a diverse portfolio, BAE Systems reports its performance its principal markets – the US, UK, the broadly balanced between an through five principal reporting Kingdom of Saudi Arabia and Australia enduring services and support business, segments. – as well as established positions in a long-term platform and product number of other international markets. programmes, electronic systems, and activities in cyber and intelligence. D E E A A A C D Our Segmental Segmental 19 markets 43 review 43 review B C D C B B A US 42% A Platforms 30% A Electronic Systems 22% B UK 21% B Military and technical services and support 43% B Cyber & Intelligence 9% C Saudi Arabia 14% C Electronic systems 22% C Platforms & Services (US) 16% D Australia 3% D Cyber 5% D Air 37% E Other international markets3 20% E Maritime 16% BAE Systems Annual Report 2018 03 Our key products BAE Systems has strong, established positions supplying defence equipment, electronics and services and services, as well as cyber, intelligence and security solutions for governments. Typhoon and Hawk F-35 Lightning II design Unmanned and future manufacture and and manufacture air system capabilities capability development Design and manufacture of sub-assemblies Development of future air system capabilities, in the UK, including the aft fuselage and including joint investment with the UK Manufacture of major Typhoon assemblies empennage. Provision of equipment in the government and industry in next-generation for European partner nations and other US, including the electronic warfare suite. combat air systems. The Tempest programme export customers. Aircraft assembly for the BAE Systems has a significant workshare on the has been launched in support of the UK Royal Air Force and Royal Saudi Air Force. world’s largest defence programme. Combat Air Strategy, announced in July. Supply of Typhoon and Hawk aircraft with support and training package to Qatar. Expansion of the capabilities of the aircraft. Complex warships Defence electronics Commercial avionics Design and manufacture of two 65,000-tonne Design, manufacture and support of avionics equipment aircraft carriers, five Offshore Patrol Vessels, and equipment across a range of US and other allied Type 26 frigates for the Royal Navy. The first nations’ military aircraft programmes, including Design, manufacture and support of avionics Type 26 is expected to enter service in the a leadership position in the electronic warfare equipment across multiple commercial aircraft mid-2020s. Contract signed with the Australian market. platforms, including engine and flight controls, government that provides the framework for and cabin and cockpit systems, together with the design and manufacture of Hunter