Final Results

RNS Number : 5311D

BAE SYSTEMS PLC

20 February 2020

BAE Systems plc

Preliminary Announcement 2019

Results in brief

Financial performance measures as defined by the Group¹			Financial performance measures defined in IFRS²
	2019	2018		2019	2018
Sales	£20,109m	£18,407m	Revenue	£18,305m	£16,821m
Underlying EBITA³	£2,117m	£1,928m	Operating profit³	£1,899m	£1,605m
Underlying earnings per share³ excluding one-off tax benefit including one-off tax benefit	45.8p 50.8p	42.9p 42.9p	Basic earnings per share³	46.4p	31.3p
Operating business cash flow³	£1,307m	£993m	Net cash flow from operating activities³	£1,597m	£1,200m
Net debt	£(743)m	£(904)m
Order intake⁴	£18,447m	£28,280m
Order backlog⁴	£45.4bn	£48.4bn

Post-employment benefits and dividend

	2019	2018
Group's share of the net post-employment benefits deficit⁵	£(4.5)bn	£(4.0)bn
Dividend per share	23.2p	22.2p

Charles Woodburn, Chief Executive , said: "2019 has been a year of significant progress for BAE Systems. We delivered a good set of financial results in line with guidance, growing sales and earnings, with improved operational performance and increased investment in the business to underpin our growth outlook. Strategically we took a number of actions to strengthen the portfolio and the pensions agreement announced today is good for all stakeholders. These will help to accelerate our strategy and further our growth outlook. We have a large order backlog and remain focused on strong programme performance to deliver a sustainable business model with enhanced financial performance."

Financial highlights

Financial performance measures as defined by the Group¹

- Sales increased by £1.7bn, a 7% increase, excluding the impact of currency translation⁶.

- Underlying EBITA increased to £2,117m, a 5% increase on a constant currency basis⁶ and excluding the impact of IFRS 16³.

- Underlying earnings per share³ increased by 7% to 45.8p (excluding the one-off tax benefit).

- Operating business cash flow³ increased by £314m to £1,307m.

- Net debt decreased to £743m.

- Order intake⁴ of £18.4bn.

- Order backlog⁴ of £45.4bn.

Financial performance measures defined in IFRS²

- Revenue increased by £1.5bn, a 7% increase, excluding the impact of currency translation⁶.

- Operating profit³ increased by £294m to £1,899m, including £27m of non-recurring charges (2018 £154m).

- Basic earnings per share³ increased by 48% to 46.4p.

- Net cash flow from operating activities³ increased by £397m to £1,597m. Under IFRS 16 net lease cash outflows of £273m are now classified under financing and investing activities.

Post-employment benefits and dividend

- Group's share of the pre-tax accounting net post-employment benefits deficit increased by £0.5bn to £4.5bn compared with 31 December 2018⁵.

- After consultation with the The Pensions Regulator in the UK, the Group has reached agreement with the Trustee Board of the combined pension scheme on the accelerated funding valuation and a revised deficit recovery plan.

- At the 31 October 2019 funding valuation date, the deficit was £1.9bn. The current deficit recovery plan which runs to 2026 will be replaced by a new deficit recovery plan, under which a one-off payment of £1bn is to be made in the coming months, with approximately £240m of funding payable in the scheme year ending 31 March 2020 and approximately £250m by 31 March 2021.

- Final dividend of 13.8p making a total of 23.2p per share for the year, an increase of 4.5% over 2018.

One-off tax benefit

- A one-off tax benefit of £161m was recognised in the year, arising from agreements reached in respect of overseas tax matters, net of a provision taken in respect of the estimated exposure arising from the EU's decision regarding the UK's Controlled Foreign Company regime.

1. We monitor the underlying financial performance of the Group using alternative performance measures. These measures are not defined in International Financial Reporting Standards (IFRS) and, therefore, are considered to be non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly, the relevant IFRS measures are also presented where appropriate. For alternative performance measure definitions see glossary on page 12.

2. International Financial Reporting Standards.

3. The financial impact of the adoption of IFRS 16 Leases is described on page 15, 16, 18, 19 and 53.

4. Including share of equity accounted investments.

5. The Saudi Arabia end of service benefit obligation of £97m at 31 December 2018 has been reclassified from trade and other payables to post-employment benefit obligations.

6. Current year compared with prior year translated at current year exchange rates.

Operational and strategic key points

Air

- Qatar Typhoon and Hawk aircraft programme met its contractual milestones in the year. Contract amendment agreed to accelerate Typhoon deliveries

- F-35 programme Lots 12 to 14 price negotiations concluded. 142 rear fuselage assemblies delivered in the year in line with ramp-up to full rate production in 2020

- Tempest technology maturation programme contracted between industry and UK government. Italy and Sweden governments committed to working with UK to develop next-generation combat air capability

- The first four Hawk aircraft assembled in Saudi Arabia were accepted and entered service in-Kingdom

- UK Tornado fleet successfully retired from service on schedule following RAF declaration that Typhoon had met Centurion standard with embodiment across the Typhoon fleet

- The design and production readiness phase of the Hunter Class programme for the Royal Australian Navy continues to make good progress

Maritime

- HMS Prince of Wales vessel acceptance achieved in December

- Four River Class Offshore Patrol Vessels have now been accepted, with the programme on target for completion in 2020

- Construction commenced on second of the three contracted Type 26 frigates in August

- Construction of the first Dreadnought Class submarine continues to advance, with £1.4bn of funding received in the year

- Sea trials for the fourth Astute Class submarine are due to take place in 2020

- A £230m seven-year Torpedo Repair and Maintenance contract was awarded

- The UK combat vehicles joint venture between Rheinmetall and BAE Systems Land UK was launched on 1 July

- Design requirements for the Canadian Surface Combatant are progressing towards finalisation with partners and the Royal Canadian Navy

Electronic Systems

- Growing demand for Advanced Precision Kill Weapon System (APKWS^®) laser-guided rockets, with production awards totalling over $400m (£302m) received in the year

- Over 500 electronic warfare systems delivered for the F-35 Lightning II programme, and awarded production and Block 4 modernisation contracts worth more than $750m (£566m)

- Acquired Riptide Autonomous Solutions to advance capabilities in maritime mission requirements

- Continuing growth in space resilience domain

- Establishing new facilities in Huntsville, Alabama and Manchester, New Hampshire to meet the record order backlog

- Active interceptors certified for Gulfstream G500 and G600 jets and in production

- Battery electric and fuel cell electric transit systems recorded five million zero emission miles

Platforms & Services (US)

- Deliveries of the M109A7 self-propelled howitzer and ammunition carrier vehicle sets are progressing and the decision to proceed to full-rate production was made in Q1 2020

- First deliveries achieved of the Amphibious Combat Vehicle to the US Marine Corps

- Contract modification award of $575m (£434m) received for LRIP vehicles on the Armored Multi-Purpose Vehicle programme

- Work underway to upgrade 332 vehicles to the Bradley A4 configuration

- Awarded contracts worth $466m (£352m) to upgrade configuration on various M88 vehicles

- First tandem docking of two large warships in San Diego dry-dock for contracts worth more than $170m (£128m)

- Deliveries continue of the M777 ultra-lightweight howitzer to the Indian Army, with subsequent systems to be assembled at the Mahindra Defence Systems facility

Cyber & Intelligence

- Received orders exceeding $100m (£76m) to provide logistics sustainment support to US Air Force Space Command

- Awarded $437m (£330m) task order to provide open source support to US Army and Army Intelligence & Security Command approved partners

- Technology offerings further developed and the business achieved four Amazon Web Services designations, recognising our technical proficiency and operational excellence

- Divestment of the Silversky business and exit from the UK-based Managed Security Services business in progress at year-end. Restructuring charge of £20m recognised in the year

- Strong order intake and revenue growth in the Government business unit

Guidance for 2020

Whilst the Group is subject to geopolitical uncertainties, the following guidance is provided on current expected operational performance.

Impacts from the proposed acquisitions announced in January of the Collins Aerospace Military Global Positioning business and Raytheon's Airborne Tactical Radios business are not included in the following guidance.

Group guidance

For the year ending 31 December 2020, the Group's underlying earnings per share is expected to grow by mid-single digit percentage compared to the full-year underlying earnings per share in 2019 of 45.8p, assuming a $1.30 to sterling exchange rate.

The guidance is based on the measures used to monitor the underlying financial performance of the Group. Reconciliations from these measures to the financial performance measures defined in International Financial Reporting Standards for 2019 are provided on pages 14 to 16.

Segmental guidance

Electronic Systems:

- Sales, in US dollar terms, are expected to show mid-single digit percentage growth driven by a number of electronic warfare contracts including F-35. Some 70% of projected sales are in the 2019 closing order backlog, similar to last year.

- Margin¹ is expected to be at the higher end of our 14% to 16% range.

Cyber & Intelligence :

- In aggregate, we expect sales to be in line with 2019.

- The US business, which represented some 70% of this segment in 2019, is expected to show low-single digit percentage growth.

- In the Applied Intelligence business we expect good top line expansion in the Government and Financial Services areas. However, the proposed disposal of the Silversky business is expected to reduce sales by approximately $100m.

- Margin¹ in 2020 is expected to improve into the 7% to 8% range. The US business is again expected to contribute around the 8% to 9% mark. In Applied Intelligence we expect the business to move back into profitability absent the restructuring charge and following the exit of the two proposed business disposals.

Platforms & Services (US):

- Sales, in US dollar terms, are expected to show high-single digit percentage growth, with increasing volumes from the US Combat Vehicles backlog and in ship repair. More than 80% of guidance is within the closing order backlog, similar to last year.

- Margin¹ is expected to remain at the low end of the 8% to 9% range. The ramp-up of vehicle deliveries primarily on the Armored Multi-Purpose Vehicle together with trading of the Mobile Protected Firepower development programme will continue to be at initial low margin levels.

Air:

- Sales are expected to show mid-single digit percentage growth, for increased activity on the Qatar Typhoon and Hawk programme and on F-35 as full rate production levels are achieved. Close to 90% of sales guidance is within the closing order backlog.

- Margin¹ is expected to be lower than 2019, towards the bottom end of our 11% to 13% range. There is a headwind from higher pension service costs, as well as the further increase in self-funded research and development expenditure on the Tempest programme. Partly offsetting these is an expected step up in Qatar margin recognition.

Maritime:

- Sales are expected to be stable overall. Activity on the Carrier and Offshore Patrol Vessel programmes is almost complete. These are offset by increases in the Dreadnought submarine and Type 26 programmes. Around 80% of guidance is already covered by the order backlog.

- Margin¹ levels are expected to be at the top end of our 8% to 9% range.

HQ:

- HQ costs are expected to be slightly lower than in 2019.

- Underlying finance costs are expected to be around 10% less. There will be a full-year of benefit following the repayment of the high coupon $1bn bond in June 2019. Net present value charges will also be lower. These will be partly offset by the cost of the term debt to support the planned £1bn of accelerated pension deficit funding.

- The underlying effective tax rate is expected to increase from 19% to around 20%, with the final rate dependent on the geographical mix of profits.

- Minority interest is expected to increase to around £75m as we complete further sell downs in our Saudi partner companies.

- The Group is targeting free cash flow of £3.5bn to £3.8bn in the three-year period 2020 to 2022, with close to £1bn expected in 2020.

1. Underlying EBITA as a percentage of sales.

For further information please contact:

Investors

Media Relations

Martin Cooper,
Investor Relations Director

Telephone: +44 (0) 3300 488830

Kristina Anderson,
Director, Media Relations

Telephone: +44 (0) 7540 628673

+44 (0) 1252 383455

Email: investors@baesystems.com

Email: kristina.anderson@baesystems.com

Analyst and investor presentation

A presentation, for analysts and investors, of the Group's Results for 2019 will be available via webcast at 9.00am today (20 February 2020).

Details can be found on investors.baesystems.com, together with presentation slides and a pdf copy of this report. A recording of the webcast will be available for replay later in the day.

About BAE Systems

At BAE Systems, we provide some of the world's most advanced, technology-led defence, aerospace and security solutions.

We employ a skilled workforce of 87,800 people¹ in more than 40 countries. We help our customers to stay a step ahead when protecting people and national security, critical infrastructure and vital information. We also work closely with local partners to support economic development through the transfer of knowledge, skills and technology .

1. Including share of equity accounted investments.

Preliminary results statement

Introduction

In 2019, BAE Systems delivered a good set of financial results underpinned by improving operational performance. Governments in key markets continue to prioritise defence and security and there is a strong demand for the Group's capabilities, products and services.

BAE Systems is a resilient company with long-term strength from its programmes, technologies, customer relationships and sustainability agenda. The Group maintained its strong balance between production and aftermarket services in terms of both revenue and margin, and the geographic mix of the business continued to evolve as the US and International business continued to grow and UK and Kingdom of Saudi Arabia revenues remained stable. Following the significant international wins in recent years, as these programmes ramp-up they will become the second-largest revenue drivers for the Group behind its US-based businesses.

The Group strategy remains focused, consistent and is delivering results. Execution on the key strategic objectives of operational excellence, competitiveness and technological innovation is vital for the successful delivery of the order backlog, to deliver future growth and a high-performing sustainable business. Good progress in all areas was made in 2019.

Operationally, programme performance improvement is now being delivered. The business will continue to drive programme performance to ensure successful delivery of its order backlog and the expected improvements in long-term cash generation. However, safety performance in the year fell below the Group's high expectations. The safety and wellbeing of employees is paramount. To that end, the Group has sought external expertise to review a number of its sites and strengthened the team with new heads of safety in the UK and US to refocus and sharpen thinking in this critical area.

Investment in self-funded research and development increased in the year and the Group's portfolio was further bolstered by two technology-focused acquisitions. The business aims to further increase technology funding in the coming years especially in Air and Electronic Systems as it looks to maintain and enhance its long-term strategic positions.

2019 performance

The Group's US-based portfolio remains well aligned with customer priorities and the key focus areas outlined in the US National Defense Strategy.

The passage and signing of the fiscal year 2020 Defense Appropriations bill ended the Continuing Resolution and maintained funding support for many key BAE Systems programmes, including combat vehicles, F-35, electronic warfare programmes, and current and future precision weapons systems.

The fiscal year 2020 measure includes a top line budget of $738bn for defence, a 3% increase over 2019, and lawmakers have already agreed to a bipartisan deal setting the defence spending caps for fiscal year 2021 at $740.5bn. Whilst the Group remains cautiously optimistic about the budget process, numerous ongoing political issues may continue to detract from the timely passage of appropriations legislation.

The US electronics business delivered another standout operational performance in 2019, especially in its core franchise positions in the high-technology areas of electronic warfare, precision-guided munitions, Intelligence, Surveillance and Reconnaissance, and electro-optics. The business closed with a record order backlog and the outlook for all its defence-focused divisions is positive with the portfolio well positioned to address key growth areas. These capabilities are also being leveraged on international as well as domestic programmes. The Controls and Avionics and Power and Propulsion Solutions businesses are leveraging capabilities from the Group's defence base to provide adjacencies into the commercial markets, giving exposure to the expanding civil aerospace market through the engine and flight control franchises.

The business remains focused on investment in emerging technologies and leveraging customer funding to maintain, develop and grow its strong market positions. Aligned with this strategy, Electronic Systems acquired the Riptide Autonomous Solutions business, a developer of unmanned underwater vehicles, in June 2019.

In January 2020, the Group announced two asset purchase agreements worth a total estimated $2.2bn for the proposed acquisitions of Collins Aerospace's Military Global Positioning System business and Raytheon's Airborne Tactical Radios business, both of which would be integrated into the Electronic Systems portfolio. These proposed acquisitions are conditional upon the successful closing of the pending Raytheon and United Technologies Corporation merger, as well as other customary closing conditions and required US regulatory approvals.

Platforms & Services (US) made steady progress in addressing its operational challenges. The US-based combat vehicles business is implementing a number of process and automation improvements to meet increased production volumes across multiple programmes with lessons learned being applied across the portfolio. The M109A7 met its delivery targets in the second half of the year and initial deliveries were made on the Amphibious Combat Vehicle programme. Further contract awards were received for the M88A3 modernisation and Bradley A4 programmes, strengthening the order backlog. Looking into 2020 the business will have three upgrade and three new-build programmes ramping up through its facilities.

The sector continued to shape its market-leading US naval ship repair business, maintaining a strong bid pipeline for repair and modernisation services, and working with the US Navy to improve utilisation levels. To this end, it was a strategic step forward in October when the first destroyer tandem docking in the Group's San Diego facility was achieved. The ship repair and naval guns franchises are well supported by the growth outlook in the US Navy budget and projected fleet size. With the delivery of the final constructed ship in March and the sale of the Mobile shipyard, the business exited commercial shipbuilding.

The US-based Intelligence & Security business is maintaining a high level of bid activity and a strong pipeline despite a highly competitive and evolving market. The business is delivering on contracts with good programme and financial performance in the year.

The UK is Europe's largest defence market. The UK government recently stated its commitment to uphold the NATO commitment to spend at least 2% of Gross Domestic Product on defence, and to increase the defence budget by at least 0.5% above inflation, in every year of the current parliament. The government is also expected to launch an Integrated Foreign Policy, Defence and Security Review during the course of 2020.

The work under the Team Tempest contract to develop next-generation combat air technologies, skills and expertise, in collaboration with UK government and industry partners, continues at pace. In the second half of the year the commitment of both Sweden and Italy to work with the UK on creating next-generation combat air capability was a welcome development.

During 2019, the Group remained focused on the execution of its long-term contracted positions in Air and Maritime.

In Air, the production ramp-up of rear fuselage assemblies for the F-35 Lightning II aircraft progressed well with 142 sets delivered. Full-rate production levels of approximately 160 sets are targeted in 2020. As the UK and global fleets grow, securing a long-term support position on the F-35 Lightning II remains a key focus.

With imminent completion of the current partner nation deliveries, Typhoon production is now focused on the sub-assembly build on the Kuwait and Qatar programmes, which sustain production into the mid-2020s. The potential pipeline for Typhoon additional orders remains positive, with opportunities both with partner nations and through exports with existing and new customers. Securing additional orders would extend production revenue levels.

Typhoon support delivered the expected operational performance levels and, with the Centurion standard having been declared, the UK Tornado fleet successfully retired from service on schedule.

In Maritime, the aircraft carrier build programme was completed with HMS Prince of Wales being accepted by the customer. The Offshore Patrol Vessels programme stabilised in the year delivering the second and third ships. The fourth ship was accepted by the customer in February 2020, and the final ship is expected to complete this year. Manufacturing work on the Type 26 programme in the UK continues to increase following cut steel on the second ship in August. Activity on the Dreadnought programme ramped up throughout the year with revenues now exceeding those on the Astute programme. The associated major programme of building works continued to progress.

BAE Systems will of course support the UK government in achieving its aim to ensure that the UK maintains its key role in European security and defence post-Brexit and to strengthen bilateral relationships with key partners in Europe. This will be important for ongoing collaboration in the development of defence capabilities.

The Group has relatively limited UK-EU trading and the majority of persons employed in the UK are UK nationals, with only limited movement of EU nationals into and out of the Group's UK businesses. Accordingly, the resulting Brexit near-term impacts across the business are likely to be limited.

International

BAE Systems' defence and security capabilities remain highly relevant in an uncertain global environment with complex threats. During 2019, the Group further widened its international reach through the export win in Canada and a number of Foreign Military Sales through the Electronic Systems business. There are good prospects in existing and new international markets for the Group's products and services in air, maritime, land and cyber security. Defence and security remains high on national agendas with the need in many cases to recapitalise or upgrade ageing equipment.

In Saudi Arabia, BAE Systems continues to work closely with industry partners and UK government to ensure that the export licences required to enable the Group to fulfil its contractual obligations in the Kingdom are in place. On the Hawk programme, the first in-Kingdom final assembled aircraft were completed and entered into service.

BAE Systems continues to address current and potential new requirements as part of long-standing agreements between the UK government and the Saudi Arabian government as the Group continues to work on the localisation of defence capabilities in Saudi Arabia, in support of the Saudi Arabian government's National Transformation Plan and Vision 2030. Over many years, the Group has developed and taken shareholdings in local Saudi businesses. The Group is restructuring its portfolio of interests in these businesses and in the year, it disposed of its shareholding in Aircraft Accessories and Components Company. Following the Group's subsidiary, Overhaul and Maintenance Company, entering into a heads of terms for the sale of its 50% shareholding in Advanced Electronics Company to Saudi Arabian Military Industries, negotiations are continuing and the transaction is expected to take place in 2020.

In Qatar the contract between BAE Systems and the Government of the State of Qatar for the supply of 24 Typhoon and nine Hawk aircraft to the Qatar Amiri Air Force, along with a bespoke support and training package, is meeting its contractual milestones with Typhoon aircraft delivery now aligned to an accelerated schedule which was agreed in the year.

In Australia, the initial four-year design and productionisation phase on the Hunter Class programme commenced and the first formal integrated baseline review is scheduled to commence in Q1 2020. Production of the first ship is expected to commence in South Australia in the early 2020s. This Hunter Class programme will, over time, double the size of the Group's current Australian business.

Following contract signing in February 2019, BAE Systems is providing the design, based on the Type 26, for the Canadian Surface Combatant programme. Mobilisation activities are progressing on the programme.

Whilst operating under a difficult geopolitical backdrop, the MBDA joint venture has continued to win orders in both domestic and international markets. The business continues to invest in new products and is well placed to benefit from defence spend increases in a number of European countries and international opportunities.

Cyber security

In the Group's Applied Intelligence business, the UK Government Services division performed well. Following a strategic review, the Group commenced a process for the disposal of the Applied Intelligence US-based software-as-a-service business and decided to exit the UK-based Managed Security Services business. Cyber security is an increasingly important part of government security and a core element of stewardship for companies in a sophisticated and persistent threat environment. The services and products the Group offers in the remaining core business, including the Financial Services division, are expected to drive growth and improved returns as the market continues to develop.

Balance sheet and capital allocation

The Group's balance sheet is managed conservatively, in line with its policy, to retain its investment grade credit rating and to ensure operating flexibility.

Consistent with this approach, the Group expects to continue to meet its pension obligations, invest in research and technology and pursue other organic investment opportunities, and plans to pay dividends in line with its policy of long-term sustainable cover of around two times underlying earnings. Investment in value-enhancing acquisitions and returns to shareholders through a share buyback will be considered in line with the Group's clear and consistent strategy and capital allocation policy.

A $1bn 6.375% bond, of which $500m had been converted to a floating rate bond by utilising interest rate swaps, matured and was repaid in June 2019.

Post-employment benefits schemes

The Group's share of the pre-tax accounting net post-employment benefits deficit increased to £4.5bn (2018 £4.0bn). The impact of lower discount rates increasing liabilities was in some part offset by good asset returns and changes in mortality assumptions.

In October 2019, six of the Group's nine UK pension schemes (including the two largest schemes) were consolidated into a single scheme. Following that consolidation, the Company agreed with the new Trustee Board to bring forward the funding valuation of the combined scheme to 31 October 2019 from the previously scheduled date of 31 March 2020.

After consultation with the The Pensions Regulator in the UK, the Group has reached agreement with the Trustee Board of the combined scheme on the accelerated funding valuation and revised deficit recovery plan.

At the 31 October 2019 funding valuation date, the deficit was £1.9bn. The current deficit recovery plan which runs to 2026 will be replaced by a new deficit recovery plan, under which a one-off payment of £1bn is to be made in the coming months, with approximately £240m of funding payable in the scheme year ending 31 March 2020 and approximately £250m by 31 March 2021.

Board and Executive Committee changes

Nicole Piasecki and Stephen Pearce were appointed to the Board as non-executive directors on 1 June 2019. Harriet Green retired from the Board on 7 November 2019, having served as a non-executive director for nine years. As previously announced, Peter Lynas and Jerry DeMuro will retire from the Board on 31 March 2020. With effect from 1 April 2020, they will be succeeded by Brad Greve and Tom Arseneault, respectively. On joining the Board, Mr Greve will be appointed Group Finance Director, and Mr Arseneault will be appointed President & Chief Executive Officer of BAE Systems, Inc.. Nick Rose, a non-executive director, will retire from the Board on 31 March 2020 .

At the start of 2019 David Armstrong was appointed as Group Business Development Director following Alan Garwood's retirement. In June, Mark Phillips was appointed Group Communications Director and in May, Andrew Wolstenholme left the Company and was replaced by Glynn Phillips as Group Managing Director Maritime. Brad Greve joined the Executive Committee in September following his appointment as Group Finance Director designate. At the start of 2020 Ben Hudson was appointed as Chief Technology Officer, replacing Nigel Whitehead who announced his intention to retire.

Summary

The business benefits from a large order backlog, with established positions on long-term programmes in the US, UK, Saudi Arabia and Australia. The Group's strategy is clear and well defined with governments in its key markets continuing to prioritise defence and security, with strong demand for the Group's capabilities. Through execution of its strategy, BAE Systems is well placed to maximise opportunities, deal with the challenges and deliver a business focused on sustainability and generating shareholder value.

Dividends

The Board has recommended a final dividend of 13.8p for a total of 23.2p for the full year. Subject to shareholder approval at the May 2020 Annual General Meeting, the dividend will be paid on 1 June 2020 to holders of ordinary shares registered on 17 April 2020.

Glossary

We monitor the underlying financial performance of the Group using alternative performance measures. These measures are not defined in International Financial Reporting Standards (IFRS) and, therefore, are considered to be non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly, the relevant IFRS measures are also presented where appropriate.

	Definition	Purpose
Financial performance measures as defined by the Group
Sales	Revenue plus the Group's share of revenue of equity accounted investments.	Allows management to monitor the sales performance of subsidiaries and equity accounted investments.
Underlying EBITA	Operating profit excluding amortisation and impairment of intangible assets, finance costs and taxation expense of equity accounted investments (EBITA), and non-recurring items*.	Provides a measure of operating profitability that is comparable over time.
Underlying earnings per share	Basic earnings per share excluding amortisation and impairment of intangible assets, non-cash finance movements on pensions and financial derivatives, and non-recurring items*.	Provides a measure of underlying performance that is comparable over time.
Operating business cash flow	Net cash flow from operating activities excluding taxation and including net capital expenditure and lease principal amounts, financial investment and dividends from equity accounted investments.	Allows management to monitor the operational cash generation of the Group.
Free cash flow	Operating business cash flow less interest paid (net) and taxation.	Allows management to monitor utilisation of cash in line with the Group's capital allocation policy.
Net debt	Cash and cash equivalents, less loans and overdrafts (including debt-related derivative financial instruments). Net debt does not include lease liabilities.	Allows management to monitor the indebtedness of the Group.
Order intake	Funded orders received from customers including the Group's share of order intake of equity accounted investments.	Allows management to monitor the order intake of subsidiaries and equity accounted investments.
Order backlog	Funded and unfunded unexecuted customer orders including the Group's share of order backlog of equity accounted investments. Unfunded orders include the elements of US multi-year contracts for which funding has not been authorised by the customer.	Supports future years' sales performance of subsidiaries and equity accounted investments.
*Non-recurring items are items of financial performance which have been determined by management as being material by their size or incidenceand not relevant to an understanding of the Group's underlying business performance. The Group's definition of non-recurring items includesprofit or loss on business transactions, and costs incurred which are one-off in nature, for example non-routine costs or income relating topost-retirement benefit schemes, and other exceptional items which management has determined as not being relevant to an understandingof the Group's underlying business performance.

		Definition	Purpose
Financial performance measures defined in IFRS
Revenue	Income derived from the provision of goods and services by the Company and its subsidiary undertakings.		N/a
Operating profit	Profit for the year before finance costs and taxation expense. This measure includes finance costs and taxation expense of equity accounted investments.		N/a
Basic earnings per share	Basic earnings per share in accordance with International Accounting Standard 33 Earnings per Share.		N/a
Net cash flow from operating activities	Net cash flow from operating activities in accordance with International Accounting Standard 7 Statement of Cash Flows.		N/a
Other financial measures
Post-employment benefits deficit	Net International Accounting Standard 19 Employee Benefits deficit excluding amounts allocated to equity accounted investments.		N/a
Dividend per share	Interim dividend paid and final dividend proposed per share.		N/a

Income statement

	2019 £m	2018 £m
Financial performance measures as defined by the Group¹
Sales	20,109	18,407
Underlying EBITA	2,117	1,928
Return on sales	10.5%	10.5%
Financial performance measures defined in IFRS²	£m	£m
Revenue	18,305	16,821
Operating profit	1,899	1,605
Return on revenue	10.4%	9.5%
Reconciliation of sales to revenue	£m	£m
Sales	20,109	18,407
Deduct Share of sales by equity accounted investments	(2,878)	(2,812)
Add Sales to equity accounted investments	1,074	1,226
Revenue	18,305	16,821
Reconciliation of underlying EBITA to operating profit	£m	£m
Underlying EBITA	2,117	1,928
Non-recurring items	(27)	(154)
Amortisation of intangible assets	(109)	(85)
Impairment of intangible assets	(6)	(33)
Financial expense of equity accounted investments	(23)	(13)
Taxation expense of equity accounted investments	(53)	(38)
Operating profit	1,899	1,605
Net finance costs	(273)	(381)
Taxation expense	(94)	(191)
Profit for the year	1,532	1,033
Underlying net interest expense³	(257)	(215)
Net interest expense on post-employment benefit obligations	(117)	(106)
Fair value and foreign exchange adjustments on financial instruments and investments	78	(73)
Net finance costs (including equity accounted investments)	(296)	(394)

Exchange rates	2019	2018
Average
£/$	1.277	1.335
£/€	1.141	1.130
£/A$	1.836	1.786
Year end
£/$	1.324	1.274
£/€	1.180	1.114
£/A$	1.884	1.809
Sensitivity analysis	£m
Estimated impact on sales of a ten cent movement in the average exchange rate:
$	675
€	100
A$	40

1. For alternative performance measure definitions see glossary on page 12.

2. International Financial Reporting Standards.

3. Underlying net interest expense is defined as finance costs for the Group and its share of equity accounted investments, excluding net interest expense on post-employment benefit obligations and fair value and foreign exchange adjustments on financial instruments and investments.

Sales increased by £1.7bn to £20.1bn (2018 £18.4bn), a 7% increase on a constant currency basis.

Underlying EBITA increased to £2,117m (2018 £1,928m), giving a return on sales of 10.5% (2018 10.5%). Excluding the impacts of IFRS 16 and exchange translation, growth was 5%.

Revenue increased by £1.5bn to £18.3bn (2018 £16.8bn), a 7% increase on a constant currency basis.

Operating profit increased by £294m to £1,899m (2018 £1,605m). There was a favourable exchange translation impact of £36m.

Non-recurring items in 2019 of £27m comprises a £36m charge relating to the derecognition of Enterprise Resource Planning software intangible assets in the Air sector, charges of £13m relating to legal disputes arising from historical disposals, a gain of £14m on the sale of the Group's 55% shareholding in BAE Systems Global Combat Systems Limited upon formation of the Rheinmetall BAE Systems Land joint venture, and a gain of £8m relating to the disposal of the Aircraft Accessories and Components Company. Non-recurring items in 2018 of £154m represented a Guaranteed Minimum Pension equalisation charge of £114m, and a loss on disposal of the Mobile, Alabama, shipyard of £40m.

Amortisation of intangible assets is £109m (2018 £85m), the increase mainly a result of new IT systems becoming operational.

Impairment of intangible assets in 2019 is £6m. In 2018 the charge represented the impairment of Silversky customer-related intangibles in the Applied Intelligence business.

Net finance costs , including equity accounted investments, were £296m (2018 £394m). The underlying interest charge, excluding pension accounting, and fair value and foreign exchange adjustments on financial instruments and investments increased to £257m (2018 £215m). Net interest expense on the Group's pension deficit was £117m (2018 £106m). There was a credit in respect of fair value and foreign exchange adjustments of £78m (2018 £73m charge) on exchange translation of US dollar-denominated bonds.

IFRS 16 Leases has been applied for the first time in 2019, and as a result underlying EBITA and operating profit are both approximately £50m higher than the prior year as a depreciation charge on leased assets is reported, rather than the operating lease expense previously recognised. Net finance costs have also increased under IFRS 16 by approximately £50m owing to the recognition of the interest charge element of the lease liabilities.

Taxation expense , including equity accounted investments, of £147m (2018 £229m) reflects the Group's underlying effective tax rate for the year of 19%, less a £161m credit in respect of two items. Following agreements reached in respect of overseas tax matters, a one-off benefit has been recognised; and, following review of the April 2019 EU Commission decision that concluded that the UK's Controlled Foreign Company regime partially represents State Aid, a provision has been recognised for the estimated exposure. The underlying effective rate increased to 19% from 18% in 2018.

The underlying effective tax rate for 2020 is expected to increase from 19% to around 20%, with the final rate dependent on the geographical mix of profits.

Earnings per share
	2019	2018
Financial performance measures as defined by the Group¹
Underlying earnings (excluding the one-off tax benefit)	£1,457m	£1,370m
Underlying earnings per share (excluding the one-off tax benefit)	45.8p	42.9p
Underlying earnings (including the one-off tax benefit)	£1,618m	£1,370m
Underlying earnings per share (including the one-off tax benefit)	50.8p	42.9p
Financial performance measures defined in IFRS²
Profit for the year attributable to equity shareholders	£1,476m	£1,000m
Basic earnings per share	46.4p	31.3p
Reconciliation of underlying EBITA to underlying earnings	£m	£m
Underlying EBITA	2,117	1,928
Underlying net interest expense (including equity accounted investments)³	(257)	(215)
	1,860	1,713
Taxation expense (at the underlying effective tax rate, excluding the one-off tax benefit)	(347)	(310)
Non‑controlling interests	(56)	(33)
Underlying earnings (excluding the one-off tax benefit)	1,457	1,370
One-off tax benefit	161	-
Underlying earnings (including the one-off tax benefit)	1,618	1,370
Reconciliation of underlying earnings to profit for the year attributable to equity shareholders	£m	£m
Underlying earnings (excluding the one-off tax benefit)	1,457	1,370
Non-recurring items, post tax	(18)	(126)
Amortisation and impairment of intangible assets, post tax	(93)	(97)
Net interest expense on post-employment benefit obligations, post tax	(95)	(87)
Fair value and foreign exchange adjustments on financial instruments and investments, post tax	64	(60)
One-off tax benefit	161	-
Profit for the year attributable to equity shareholders	1,476	1,000
Non-controlling interests	56	33
Profit for the year	1,532	1,033

Underlying earnings per share excluding the one-off tax benefit for the year increased by 7% to 45.8p (2018 42.9p). Underlying earnings per share including the one-off tax benefit for the year was 50.8p.

Basic earnings per share was 46.4p (2018 31.3p).

The application of IFRS 16 Leases for the first time in 2019 has had no material impact on earnings per share.

1. For alternative performance measure definitions see glossary on page 12.

2. International Financial Reporting Standards.

Cash flow
	2019 £m	2018 £m
Financial performance measures as defined by the Group¹
Operating business cash flow	1,307	993
Financial performance measures defined in IFRS²	£m	£m
Net cash flow from operating activities	1,597	1,200
Reconciliation from operating business cash flow to net cash flow from operating activities	£m	£m
Operating business cash flow	1,307	993
Add back Net capital expenditure and financial investment	454	464
Add back Principal element of lease payments and receipts	230	-
Deduct Dividends received from equity accounted investments	(142)	(57)
Deduct Taxation	(252)	(200)
Net cash flow from operating activities	1,597	1,200
Net capital expenditure and financial investment	(454)	(464)
Principal element of finance lease receipts	9	-
Dividends received from equity accounted investments	142	57
Interest received	28	25
Acquisitions and disposals³	43	24
Net cash flow from investing activities	(232)	(358)
Interest paid	(233)	(203)
Net sale of own shares	-	1
Equity dividends paid	(724)	(703)
Partial disposal of shareholding in subsidiary undertaking³	31	17
Dividends paid to non-controlling interests	(56)	(28)
Principal element of finance lease payments	(239)	-
Cash flow from matured derivative financial instruments (excluding cash flow hedges)	40	6
Movement in cash collateral	1	2
Net cash flow from loans	(782)	(7)
Net cash flow from financing activities	(1,962)	(915)
Net decrease in cash and cash equivalents	(597)	(73)
Add back Net cash flow from loans	782	7
Foreign exchange translation	72	(188)
Other non-cash movements	(96)	102
Decrease/(increase) in net debt	161	(152)
Opening net debt	(904)	(752)
Net debt	(743)	(904)

	£m	£m
Operating business cash flow	1,307	993
Interest paid, net of interest received	(205)	(178)
Taxation	(252)	(200)
Free cash flow (as defined by the Group)⁴	850	615

1. For alternative performance measure definitions see glossary on page 12.

2. International Financial Reporting Standards.

3. 2018 comparatives have been reclassified to present a cash inflow of £17m in respect of a partial disposal of the Group's shareholding in a subsidiary undertaking within financing activities. This cash flow was previously presented within investing activities.

4. Free cash flow is defined as operating business cash flow less interest paid (net) and taxation.

Operating business cash inflow was £1,307m (2018 £993m), which includes cash contributions in respect of pension deficit funding, over and above service costs, for the UK and US schemes totalling £231m on a funding basis.

Net cash inflow from operating activities was £1,597m (2018 £1,200m). Under IFRS 16 net lease cash outflows of £273m are now classified under financing and investing activities.

Taxation payments increased to £252m (2018 £200m) partly reflecting payments in Australia following the end of utilisation of prior year losses.

Net capital expenditure and financial investment was £454m (2018 £464m).

Dividends received from equity accounted investments of £142m (2018 £57m) were primarily receipts from MBDA (£73m), Advanced Electronics Company (£38m) and FNSS (£17m).

Interest received was £28m (2018 £25m).

The cash inflows in respect of acquisitions, disposals, held for sale assets and the partial disposal of shareholdings in subsidiary undertakings represent the disposal of Aircraft Accessories and Components Company (£26m), the disposal of the UK-based land vehicles business into the RBSL joint venture (£29m), the reduction in the Group's shareholding in Overhaul and Maintenance Company (£31m) (2018 £17m), less the investment in Riptide Autonomous Solutions (£9m) and the Prismatic acquisition (£3m). The cash inflow in 2018 of £24m included cash acquired as part of the ASC Shipbuilding acquisition (£14m) and cash received on the sale of the Mobile, Alabama, shipyard (£12m).

Interest paid was £233m (2018 £203m).

Equity dividends paid in 2019 represents the 2018 final (£423m) and 2019 interim (£301m) dividends.

Dividends paid to non-controlling interests increased to £56m (2018 £28m), reflecting a higher payment by Saudi Maintenance & Supply Chain Management Company, in which the Group has a 51% shareholding .

There was a cash inflow from matured derivative financial instruments of £40m (2018 £6m), arising from rolling hedges relating to balances within the Group's subsidiaries and equity accounted investments .

Foreign exchange translation primarily arises in respect of the Group's US dollar-denominated borrowing.

Net debt

	2019 £m	2018 £m
Components of net debt
Cash and cash equivalents	2,587	3,232
Debt-related derivative financial instruments (net)	67	163
Loans - non-current	(3,020)	(3,514)
Loans and overdrafts - current	(377)	(785)
Net debt	(743)	(904)

The Group's net debt at 31 December 2019 is £743m, a net decrease of £161m from the position at the start of the year. The $1bn 6.375% bond, of which $500m had been converted into a floating rate bond by utilising interest rate swaps, matured and was repaid in June 2019.

Cash and cash equivalents of £2,587m (2018 £3,232m) are held primarily for the repayment of debt securities, pension deficit funding, payment of the 2019 final dividend and management of working capital.

Accounting policies

Changes in accounting policies

With effect from 1 January 2019, the Group adopted IFRS 16 Leases. This results in almost all leases being recognised on the balance sheet by lessees. The Group has applied the modified retrospective transition approach and therefore has not restated comparative amounts for the year ended 31 December 2018.

Underlying EBITA and operating profit are both approximately £50m higher than the prior year as a depreciation charge on leased assets is reported, rather than the operating lease expense previously recognised. Net finance costs have also increased under IFRS 16 by approximately £50m owing to the recognition of the interest charge element of the lease liabilities.

There are no accounting policy changes which are expected to have a significant impact on the Group with effect from 1 January 2020.

Segmental review

The Group reports its performance through ﬁve principal reporting segments.

	Year ended 31 December 2019
	As defined by the Group						Defined in IFRS¹
	Sales £m	Underlying EBITA £m	Return on sales %	Operating business cash flow £m	Order intake² £m	Order backlog² £bn	Revenue £m	Operating profit/ (loss) £m	Return on revenue %	Net cash flow from operating activities £m
Electronic Systems	4,439	687	15.5	672	5,023	6.0	4,439	672	15.1	833
Cyber & Intelligence	1,732	91	5.3	68	1,846	1.8	1,732	80	4.6	99
Platforms & Services (US)	3,337	267	8.0	241	4,020	5.8	3,185	239	7.5	305
Air	7,457	887	11.9	408	4,594	23.9	6,153	777	12.6	497
Maritime	3,116	268	8.6	150	2,875	8.6	3,071	253	8.2	289
HQ³	387	(83)		(232)	386	-	43	(122)		(174)
Deduct Intra-group	(359)				(297)	(0.7)	(318)
Deduct Taxation⁴										(252)
Total	20,109	2,117	10.5	1,307	18,447	45.4	18,305	1,899	10.4	1,597

	Year ended 31 December 2018
	As defined by the Group						Defined in IFRS¹
	Sales £m	Underlying EBITA £m	Return on sales %	Operating business cash flow £m	Order intake² £m	Order backlog² £bn	Revenue £m	Operating profit/ (loss) £m	Return on revenue %	Net cash flow from operating activities £m
Electronic Systems	3,965	606	15.3	431	4,624	5.4	3,965	590	14.9	575
Cyber & Intelligence	1,678	111	6.6	85	1,802	1.9	1,678	59	3.5	96
Platforms & Services (US)	3,005	210	7.0	(30)	3,693	5.4	2,864	161	5.6	31
Air	6,712	859	12.8	666	14,845	27.4	5,579	810	14.5	719
Maritime	2,975	209	7.0	67	3,513	9.0	2,940	191	6.5	190
HQ³	350	(67)		(226)	358	0.1	41	(206)		(211)
Deduct Intra-group	(278)				(555)	(0.8)	(246)
Deduct Taxation⁴										(200)
Total	18,407	1,928	10.5	993	28,280	48.4	16,821	1,605	9.5	1,200

1. International Financial Reporting Standards.

2. Including share of equity accounted investments.

3. HQ comprises the Group's head office activities, together with a 49% interest in Air Astana.

4. Taxation is managed on a Group-wide basis.

Segmental performance: Electronic Systems

Electronic Systems, with 16,600 employees¹, comprises the US- and UK ‑ based electronics activities, including electronic warfare systems, electro-optical sensors, military and commercial digital engine and flight controls, precision guidance and seeker solutions, next-generation military communications systems and data links, persistent surveillance capabilities, and hybrid electric drive systems.

Operational and strategic key points

- Growing demand for Advanced Precision Kill Weapon System (APKWS^®) laser-guided rockets, with production awards totalling over $400m (£302m) received in the year

- Over 500 electronic warfare systems delivered for the F-35 Lightning II programme, and awarded production and Block 4 modernisation contracts worth more than $750m (£566m)

- Acquired Riptide Autonomous Solutions to advance capabilities in maritime mission requirements

- Continuing growth in space resilience domain

- Establishing new facilities in Huntsville, Alabama and Manchester, New Hampshire to meet the record order backlog

- Active interceptors certified for Gulfstream G500 and G600 jets and in production

- Battery electric and fuel cell electric transit systems recorded five million zero emission miles

Financial performance

Financial performance measures as defined by the Group²			Financial performance measures defined in IFRS³
	2019	2018		2019	2018
Sales	£4,439m	£3,965m	Revenue	£4,439m	£3,965m
Underlying EBITA	£687m	£606m	Operating profit	£672m	£590m
Return on sales	15.5%	15.3%	Return on revenue	15.1%	14.9%
Operating business cash flow	£672m	£431m	Cash flow from operating activities	£833m	£575m
Order intake¹	£5,023m	£4,624m
Order backlog¹	£6.0bn	£5.4bn

- Sales compared to 2018 were up 7% at $5.7bn (£4.4bn). Growth in the defence business was at 9% driven by the F-35 programme, APKWS^® volumes and increased classified activity. Commercial sales of engine and flight controls and hybrid-electric drive systems also grew and at $1.2bn (£0.9bn) now amount to 21% of the sector.

- Underlying EBITA was up to $877m (£687m), delivering a return on sales of 15.5%, at the higher end of our guidance range.

- As expected, cash conversion of EBITA was very strong in the second half of the year, and close to 100% for the full year.

- Order backlog was another record high, at $7.9bn (£6.0bn), with significant awards on F-35 for LRIP 14 and Block 4 development, APKWS^® volumes and the Radar Warning Receiver upgrade.

Operational performance

Electronic Combat Solutions

Staying at the forefront of emerging threats and delivering next-generation electronic warfare (EW) capabilities are important discriminators for success. As a leader in EW, we continue to see growth across our portfolio for both US and international customers.

The F-35 Lightning II programme completed deliveries for Lot 11 and achieved the milestone of delivering over 500 EW systems. In addition, the programme was awarded a Block 4 modernisation and further F-35 system production contracts from Lockheed Martin totalling over £750m (£566m). We continue to operate under a five-year Performance Based Logistics contract to provide material availability and support for the F-35 sustainment programme.

Executing on our current contract from Boeing, we continue to deliver to the United States Air Force our Eagle Passive Active Warning Survivability System, which provides advanced aircraft protection and has completed successful F-15 aircraft flight tests despite experiencing cost and schedule overruns. We were also awarded a $495m (£374m) contract to digitally upgrade our ALR-56 Radar Warning Receiver system, enhancing the capability of our technology on F-15 jets.

Providing advanced EW capability for international F-15 aircraft, we continue to deliver on our contract from Boeing and Warner Robins Air Logistics Complex, totalling more than $1bn (£0.8bn) for the installation of the Digital Electronic Warfare System (DEWS) on new and existing F-15 aircraft. We are also executing a contract worth in excess of $300m (£227m) to provide DEWS to support the sale of new F-15 aircraft to another international customer.

As a provider of the long-range sensor and targeting technology for the Long Range Anti-Ship Missile (LRASM), we have completed Lot 1 production for our prime contractor Lockheed Martin. In addition, we received a contract modification to a previous Lot 2 production award, increasing this contract award to $78m (£59m).

The Compass Call programme continues its long history of sustaining and upgrading the prime mission equipment in support of the existing EC-130H fleet. Cross-decking the mission system onto the newly-designated Gulfstream G550 jet, the programme is currently executing contracts with a total value of nearly $500m (£378m).

Due to the sensitive nature of electronic combat systems and technology, approximately one quarter of our revenues in this business area are driven by our work on classified programmes.

Survivability, Targeting & Sensing Solutions

Our APKWS^® laser-guided rocket is experiencing growing demand, with over 36,000 units delivered to date. The programme received a five-year Indefinite Delivery, Indefinite Quantity contract worth up to $2.7bn (£2.0bn). Further production awards totalling over $400m (£302m) were received this year. In addition to expanding US military use, the system is generating strong international interest.

We are developing a next-generation missile warning system for the US Army under the Limited Interim Missile Warning System programme. We are completing qualification and continue to support government testing. We also received additional funding to enable fielding on other US Army aircraft variants.

Both fixed- and rotary-wing demonstrations of our Striker^® II helmet-mounted display are ongoing and full development awaits customer funding.

C4ISR Systems

Consistent with our strategy to obtain and incubate small business innovations that can yield disruptive technology breakthroughs, our Electronic Systems FAST Labs™ organisation acquired the key assets of Riptide Autonomous Solutions to advance our capabilities to address expanding maritime mission requirements for integrated, flexible, modular, unmanned underwater vehicle solutions.

In the space resilience domain, we are a leading provider of space-qualified subsystems and components. We continue to experience growth in the areas of integrated on-board processors, reconfigurable processing payloads and secure communications. In May, our radiation-hardened electronic products achieved 10,000 cumulative years in orbit.

We have been awarded funding from the Defense Advanced Research Projects Agency to integrate machine-learning into platforms that exploit radio frequency signals in increasingly crowded electromagnetic spectrum environments. Our flexible, reconfigurable hardware solutions will provide commercial and military users with greater, automated situational awareness of their operating environment.

Controls & Avionics Solutions

We continue to develop the integrated flight control electronics and remote electronic units for Boeing's next-generation 777X aircraft. A successful first flight of the aircraft was undertaken in January 2020 and the business is continuing software updates and systems verification testing in support of the aircraft certification efforts. During the year, our 737 MAX production rates were scaled back in line with Boeing's reduced demand.

Our active inceptors received certification for the Gulfstream G500 and G600 and are now in production. A derivative, LinkEdge™ (Active Parallel Actuation Subsystem), is being developed for the Chinook CH-47.

Our engine control product line continues to see strong performance from FADEC Alliance, a joint venture between GE Aviation and FADEC International (our joint venture with Safran Electronics & Defense). We have successfully completed component certification testing of the engine control for the Boeing 777X aircraft.

Under the recently-awarded Improved Turbine Engine Program, we will provide the Electronic Engine Controls to modernise the US Army's Black Hawk and Apache fleets.

Development of the F-35 vehicle management computer technology refresh is proceeding to plan and we are actively engaged with Lockheed Martin Aeronautics in moving towards a sustainment contract for the active inceptor systems.

Power & Propulsion Solutions

With 12,000 electric-hybrid propulsion transit buses in operation globally, we have launched the next-generation battery electric system to a market moving to zero emission technology. This year, our battery electric and fuel cell electric systems recorded five million zero emission miles. As cities work to reach low emission targets, this number is expected to grow significantly.

The demand for low and zero emission technology is growing in both commercial and military applications, with a number of European cities employing fully electric vehicles powered by our technology. Our first and largest transit customer, New York City Transit (Metropolitan Transportation Authority) announced its decision to purchase up to a further 435 electric-hybrid power and propulsion systems from BAE Systems. In addition, the maritime domain is now adopting green technology and our electric-hybrid systems are powering both passenger and cargo vessels.

Looking forward

Forward-looking information for the Electronic Systems reporting segment is provided on page 37.

1. Including share of equity accounted investments.

2. For alternative performance measure definitions see glossary on page 12.

3. International Financial Reporting Standards.

Segmental performance: Cyber & Intelligence

Cyber & Intelligence, with 10,100 employees¹, comprises the US - based Intelligence & Security business and UK-headquartered Applied Intelligence business, and covers the Group's cyber security, secure government and commercial financial security activities.

Operational and strategic key points

Intelligence & Security

- Received orders exceeding $100m (£76m) to provide logistics sustainment support to US Air Force Space Command

- Awarded $437m (£330m) task order to provide open source support to US Army and Army Intelligence & Security Command approved partners

- Technology offerings further developed and the business achieved four Amazon Web Services designations, recognising our technical proficiency and operational excellence

Applied Intelligence

- Divestment of the Silversky business and exit from the UK-based Managed Security Services business in progress at year-end. Restructuring charge of £20m recognised in the year

- Strong order intake and revenue growth in the Government business unit

Financial performance

Financial performance measures as defined by the Group²			Financial performance measures defined in IFRS³
	2019	2018		2019	2018
Sales	£1,732m	£1,678m	Revenue	£1,732m	£1,678m
Underlying EBITA	£91m	£111m	Operating profit	£80m	£59m
Return on sales	5.3%	6.6%	Return on revenue	4.6%	3.5%
Operating business cash flow	£68m	£85m	Cash flow from operating activities	£99m	£96m
Order intake¹	£1,846m	£1,802m
Order backlog¹	£1.8bn	£1.9bn

- In aggregate, sales were broadly unchanged on a constant currency basis at $2.2bn (£1.7bn). Sales in the US business were 2% lower owing to customer awards made but subsequently protested. In the Applied Intelligence business, sales were up 4%, all arising in the Government business line.

- Return on sales in the US business was in line with the prior year at 9.1%. Within Applied Intelligence, the business recorded a loss of £20m following the restructuring charge taken in the first half of the year.

- Disposal of the Silversky business and exit from the UK-based Managed Security Service are expected in the near future, both of which will improve profitability in future years.

- As expected, order backlog was stable at $2.3bn (£1.8bn), after adjusting for the expected Applied Intelligence disposals.

Operational performance

Intelligence & Security

Air Force Solutions

We received orders exceeding $100m (£76m) to provide logistics sustainment support to US Air Force Space Command for instrumentation tracking (radar, telemetry and optics) systems, which includes 26 agencies across the US Department of Defense, Department of Energy, National Aeronautics and Space Administration, plus six foreign governments.

On the US Air Force Intercontinental Ballistic Missile Integration Support Contractor Program, we were awarded a sole-source modification to increase the contract ceiling by $93m (£70m) to $1.1bn (£0.8bn). The period of performance remains through to January 2022, and our work includes programme management, systems engineering, integration and testing, sustainment and cyber defence.

Integrated Defense Solutions

We are executing the fourth year of a five-year, $368m (£278m) sole-source contract to support weapons systems on board US Ohio and UK Vanguard Class submarines, as well as future US Columbia Class and UK Dreadnought Class submarines.

The US Navy has awarded the business a five-year Indefinite Delivery, Indefinite Quantity (IDIQ) contract with an expected lifecycle value of $280m (£211m) to modernise and maintain command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance systems aboard new construction aircraft carriers and large deck amphibious ships.

We secured a $126m (£95m) contract for the US Marshals Service (USMS), a component of the US Department of Justice. The business will provide mission-critical IT infrastructure support, sustainment operations and engineering services to the USMS Information Technology Division.

The business has been awarded a $300m (£227m) contract to provide enterprise and mission-critical IT support to the Federal Emergency Management Agency's Operations and Maintenance Division. The programme will provide IT infrastructure modernisation, system sustainment and telecommunications, network and helpdesk services.

We were awarded a $212m (£160m) US Navy follow-on contract for the design, acquisition, integration and test of radio communication suites for Guided Missile Destroyers and other US Navy and Coast Guard ships. This win continues our near 50-year legacy as an integrator of mission-critical shipboard systems.

The business was awarded a five-year, $200m (£151m) contract to provide systems engineering, security management, modelling and simulation, and training services to help in the US government defence cyber mission.

Intelligence Solutions

The team is executing on a number of task order contracts valued at approximately $320m (£242m) to provide motion-imagery analysis, training, and research support services to the US intelligence community, and provide technical, functional, and general support to enhance the situational awareness and training of US Army troops deployed around the world.

A $70m (£53m) engineering change proposal was secured, extending the period of performance on a contract originally awarded in 2013 to provide high-performance computing and infrastructure support to the US intelligence community.

The business was awarded a significant follow-on contract and a new award with a combined value of over $490m (£370m) to provide critical intelligence support to the US government.

We were awarded a new $437m (£330m) task order to provide open source support for the Army and Army Intelligence & Security Command approved partners, to provide training, policy and governance recommendations, assessments and implementation of emerging capabilities, and to establish and manage a secure cloud hosting environment for these efforts.

The business was awarded a prime position on Solutions for Intelligence Analysis 3, a ten-year multiple award IDIQ contract. The company will provide worldwide coverage, support and assistance to the Defense Intelligence Agency delivering timely, objective and cogent military intelligence to defence planners and policy makers.

We are delivering our first Federated Secure Cloud implementation, supporting multiple independent levels of security, and leveraging this capability into adjacent customers. In addition, the business has established multiple commercial cloud partnerships to drive additional services revenue across defence and intelligence customers.

Among a number of strategic developments in 2019, the business furthered its technology offerings and attained Amazon DevOps, Government and Disaster Response and Public Safety Competencies, as well as being named an Amazon Web Services Premier Consulting Partner.

Applied Intelligence

As at the 2019 year-end, negotiations relating to the disposal of the US-based software-as-a-service business were ongoing.

Government

The Government business delivered good growth in orders. Performance was particularly strong in UK National Security which benefited from the signing of a number of transformational multi-year deals. Revenue growth followed the higher order intake, with increased headcount and continuing investment in talent in a competitive labour market for highly-skilled software engineers with enhanced security clearances. Profitability continued to benefit from cost control and greater efficiency in sales and management activity in the International business in particular.

Financial Services

The Financial Services business has seen a significant increase in business development investment in the year. The higher spend on product engineering culminated in the launch of a new version of NetReveal^®, v8.0, in the first half of the year. Response to the product has been positive and has led to a number of pipeline opportunities for upgrades to existing customers and deployment to new customers. The conversion of these opportunities drove order intake growth in the second half of the year and positions the business for higher levels of growth in the future.

Looking forward

Forward-looking information for the Cyber & Intelligence reporting segment is provided on page 37.

1. Including share of equity accounted investments.

2. For alternative performance measure definitions see glossary on page 12.

3. International Financial Reporting Standards.

Segmental performance: Platforms & Services (US)

Platforms & Services (US), with 12,500 employees¹, has operations in the US, UK and Sweden. It manufactures combat vehicles, weapons and munitions, and delivers services and sustainment activities, including naval ship repair and the management and operation of government-owned munitions facilities.

Operational and strategic key points

- Deliveries of the M109A7 self-propelled howitzer and ammunition carrier vehicle sets are progressing and the decision to proceed to full-rate production was made in Q1 2020

- First deliveries achieved of the Amphibious Combat Vehicle to the US Marine Corps

- Contract modification award of $575m (£434m) received for LRIP vehicles on the Armored Multi-Purpose Vehicle programme

- Work underway to upgrade 332 vehicles to the Bradley A4 configuration

- Awarded contracts worth $466m (£352m) to upgrade configuration on various M88 vehicles

- First tandem docking of two large warships in San Diego dry-dock for contracts worth more than $170m (£128m)

- Deliveries continue of the M777 ultra-lightweight howitzer to the Indian Army, with subsequent systems to be assembled at the Mahindra Defence Systems facility

Financial performance

Financial performance measures as defined by the Group²			Financial performance measures defined in IFRS³
	2019	2018		2019	2018
Sales	£3,337m	£3,005m	Revenue	£3,185m	£2,864m
Underlying EBITA	£267m	£210m	Operating profit	£239m	£161m
Return on sales	8.0%	7.0%	Return on revenue	7.5%	5.6%
Operating business cash flow	£241m	£(30)m	Cash flow from operating activities	£305m	£31m
Order intake¹	£4,020m	£3,693m
Order backlog¹	£5.8bn	£5.4bn

- Sales in the year were up 6% to $4.3bn (£3.3bn), within guidance. In the US Combat Vehicles business, the second half challenge to deliver the ramp up in M109A7 deliveries was met.

- Return on sales performance for the year improved to 8.0% with no material charges taken in the year. As regards the ramp in Combat Vehicles sales, we are trading profit on the Armored Multi-Purpose Vehicle and Amphibious Combat Vehicle programmes at an initial low level.

- Cash flow performance was very strong in the second half of the year as vehicle production deliveries increased and working capital was liquidated.

- Order backlog was further increased to $7.7bn (£5.8bn), with total in-year funded Combat Vehicle orders received of $2.5bn (£1.9bn).

Operational performance

US Combat Vehicles

The business continues to make progress towards achieving consistent production throughput across multiple programmes with the implementation of ongoing improvements and investments in modernising facilities and manufacturing technologies, including automation and robotic welding.

We are leveraging the lessons learned on the M109A7 programme and continue to integrate innovative manufacturing capabilities during the early stages of the production of new combat vehicles. While schedule adjustments have been necessary, addressing these challenges will facilitate consistency of quality and delivery for our customers, and bring long-term benefits across our vehicle programmes.

Initial Amphibious Combat Vehicles (ACVs) were delivered to the US Marine Corps under Low-Rate Initial Production (LRIP), with a third LRIP contract received in October bringing the total value to $458m (£346m) for 90 vehicles. Under a $67m (£51m) contract awarded in June, we have begun design and development activities on two new mission variants of the ACV family of vehicles.

As one of two competitors, we continue to work on the US Army's Mobile Protected Firepower programme under a $376m (£284m) contract for the engineering and manufacturing development phase for rapid prototyping efforts.

On the US Army's Armored Multi-Purpose Vehicle programme, we were awarded a $575m (£434m) contract modification, bringing the cumulative award value to $873m (£659m). Initial LRIP vehicles are scheduled to begin delivery in 2020.

We continue to progress the LRIP phase of the M109A7 programme, with contracts in 2018 and 2019 totalling approximately $750m (£566m) for 108 vehicle sets. These cumulative LRIP awards include the recent December contract modification and long-lead material funding. The decision to proceed to full-rate production was subsequently made in the first quarter of 2020. In July, we received a $45m (£34m) contract to support the integration of the Extended Range Cannon Artillery on the M109A7 to double the range of the gun system, which is among the Army's top priorities.

Work has begun under contracts for 332 vehicles, valued at $578m (£437m) to upgrade to the Bradley A4 configuration.

We continue to work on US Army contracts for production and sustainment of M88 recovery vehicles, to include upgrades from the M88A1 to the M88A2 HERCULES configuration. In September we received a $148m (£112m) contract to upgrade an additional 43 vehicles, and were competitively selected for a $318m (£240m) contract to upgrade to the next-generation M88A3 configuration to restore single-vehicle recovery.

Internationally, the delivery of an additional 11 Assault Amphibious Vehicles for Japan was completed in the second half of the year and work continues on 36 vehicles for Taiwan. The delivery of 32 M109A5+ self-propelled howitzers to the Brazilian Army was completed in the second half of the year.

Weapon Systems

Deliveries of M777 ultra-lightweight howitzers continue to the Indian Army under a $542m (£409m) Foreign Military Sale contract for 145 M777s. The initial guns are being built in our facilities, with at least 120 subsequent systems to be assembled in India at Mahindra Defence Systems' new facility.

We received two orders totalling $85m (£64m) from the US Navy to deliver six Mk45 Mod 4 gun systems, providing a solid US Navy order book of 20 Mk45 systems. We are also delivering 57mm Mk110 gun systems to the US Navy and Coast Guard, with nearly 60 systems now delivered to US maritime forces.

We continue to execute on contracts for 155mm BONUS ammunition to the Swedish Army and the US Army. Under a 2016 contract modification, we are providing 24 additional ARCHER artillery systems to the Swedish government, and we are under multiple export contracts to deliver 40 Mk4 and 57 Mk3 naval gun systems.

We continue to perform on a $183m (£138m) contract to provide the Maritime Indirect Fire System for the UK Royal Navy's Type 26 frigate, which includes Mk45 Mod 4 gun systems, automated ammunition handling systems and gun fire control systems.

Under the latest contract awarded in March, we are to produce 28 more Virginia Payload Module tubes for the US Navy's Block V Virginia-class submarines.

Ordnance Systems

We manage, operate and modernise the US Army's Radford and Holston munitions facilities.

At Holston, production operations impacted by a fire in January 2019 resulted in a £10m charge recognised in the HQ segment under the Group insurance arrangement. Modernisation activities continue under multiple contracts to construct a natural gas-fired steam facility, a waste water management facility that is nearing completion, as well as the design, construction and commissioning of new production facilities to improve efficiency and modernise energetics manufacturing.

At Radford, in addition to ongoing operations, work continues on the construction of a modernised nitrocellulose facility, and we are actively managing ongoing subcontractor performance issues, cost and schedule overruns, and related disputes.

US Ship Repair

Our US maintenance and modernisation shipyards remain in strong demand. In 2019, we secured orders across our US shipyards totalling approximately $1bn (£0.8bn), including awards to service the USS The Sullivans in Jacksonville and the USS Vicksburg in Norfolk.

In September, we received two contracts totalling more than $170m (£128m) for the repair and maintenance of the guided-missile destroyers USS Stethem and USS Decatur in San Diego, resulting in the first tandem docking of two large warships in our San Diego dry-dock.

Following a thorough analysis of the new Multiple Award Contract structure being implemented in Pearl Harbor, Hawaii, we informed the Navy we will not bid for future work in Hawaii, and will focus on completing existing contracts.

BAE Systems Hägglunds

With an installed base of nearly 1,300 CV90 vehicles in Sweden and across six other international markets, the business continues to pursue contractual opportunities, including the Czech Republic's competition to replace its fleet of BMP2 Infantry Combat Vehicles.

Work is progressing to refurbish Swedish CV90s, and initial deliveries have begun on the integration of 40 Mjölner mortar systems under a separate contract. We were selected by the Dutch Army to integrate the Elbit Systems' Iron Fist Active Protection System on its fleet of CV90s.

32 BvS10 all-terrain vehicles under contract for Austria were delivered for final acceptance.

FNSS

FNSS, our land systems joint venture based in Turkey, continues to perform under its $524m (£396m) programme to produce 259 8x8 wheeled armoured vehicles for the Royal Malaysian Army. Deliveries continue under a contract with Oman for PARS wheeled armoured vehicles in 8x8 and 6x6 configurations.

Work progresses under multiple contracts for the Turkish Armed Forces, including a €278m (£236m) contract for 260 anti-tank vehicles, an €84m (£71m) contract for air defence vehicles, a €155m (£131m) contract for 27 assault amphibious vehicles, and a contract worth €154m (£131m) for 100 special purpose 8x8 and 6x6 vehicles.

Looking forward

Forward-looking information for the Platforms & Services (US) reporting segment is provided on page 37.

1. Including share of equity accounted investments.

2. For alternative performance measure definitions see glossary on page 12.

3. International Financial Reporting Standards.

Segmental performance: Air

Air, with 28,300 employees¹, comprises the Group's UK-based air activities for European and International Markets, and US Programmes, and its businesses in Saudi Arabia and Australia, together with its 37.5% interest in the European MBDA joint venture.

Operational and strategic key points

- Qatar Typhoon and Hawk aircraft programme met its contractual milestones in the year. Contract amendment agreed to accelerate Typhoon deliveries

- F-35 programme Lots 12 to 14 price negotiations concluded. 142 rear fuselage assemblies delivered in the year in line with ramp-up to full rate production in 2020

- Tempest technology maturation programme contracted between industry and UK government. Italy and Sweden governments committed to working with UK to develop next-generation combat air capability

- The first four Hawk aircraft assembled in Saudi Arabia were accepted and entered service in-Kingdom

- UK Tornado fleet successfully retired from service on schedule following RAF declaration that Typhoon had met Centurion standard with embodiment across the Typhoon fleet

- The design and production readiness phase of the Hunter Class programme for the Royal Australian Navy continues to make good progress

Financial performance

Financial performance measures as defined by the Group²			Financial performance measures defined in IFRS³
	2019	2018		2019	2018
Sales	£7,457m	£6,712m	Revenue	£6,153m	£5,579m
Underlying EBITA	£887m	£859m	Operating profit	£777m	£810m
Return on sales	11.9%	12.8%	Return on revenue	12.6%	14.5%
Operating business cash flow	£408m	£666m	Cash flow from operating activities	£497m	£719m
Order intake¹	£4,594m	£14,845m
Order backlog¹	£23.9bn	£27.4bn

- Sales were up 11% at £7.5bn. As expected there was higher production activity on the new Typhoon and Hawk programme for Qatar, and the F-35 programme continues to ramp up towards full rate next year. In addition sales from MBDA grew on deliveries to Egypt and Qatar.

- The return on sales of 11.9% was ahead of expectations on strong programme execution. It reflects low initial profit recognition on the early stages of the Qatar programme, and increased self-funded research and development on the Tempest future combat air development. Last year's return on sales benefited by 70bps from the completing Oman Typhoon contract.

- Cash flow largely reflects the utilisation of provisions, timing on receivables, and the difference between joint venture profits and cash dividends received. There was also some usage of prior year Qatar funding.

- Order backlog reduced to £23.9bn, primarily for the trading on multi-year orders, received in prior years, for the Saudi Arabian support and Qatar programmes.

Operational performance

European & International Markets

Mobilisation activity on the 24 Typhoon and nine Hawk aircraft and associated support and training contract for the Government of the State of Qatar has progressed to plan with all initial milestones achieved. A contract amendment was agreed during the year accelerating Typhoon deliveries and contract milestones.

The first eight of 28 major units on the Kuwait Typhoon contract, secured by Italian Eurofighter partner Leonardo, have been delivered. The remaining major units are planned for delivery by 2022.

In the year, the Royal Air Force accepted the final three Typhoon aircraft from the UK final assembly facility. The German, Italian and Spanish Air Forces accepted a total of 11 aircraft in 2019, leaving one of the 88 Tranche 3 aircraft to be delivered.

Following the declaration by the Royal Air Force that Typhoon had met Centurion standard in December 2018, enabling the transition of capabilities from Tornado to Typhoon, the UK Tornado fleet successfully retired from service on schedule. Centurion standard has now been embodied across the Typhoon fleet.

In the UK, under a ten-year partnership arrangement, and in Oman, under a five-year availability service contract, we continue to support Typhoon fleets to achieve customer target flying hours. BAE Systems continues to support the European Partner Nations' own support arrangements.

Support to the Royal Air Force's UK fleet of Hawk fast jet trainer aircraft continues through the long-term availability contract. We are in discussions with the UK on future Hawk support arrangements and we continue to support users of Hawk trainer aircraft around the world.

The next phase of the Tempest technology maturation programme was contracted between industry and the UK government. This was followed by the signing of a Memorandum of Understanding between the UK and Sweden in July, and a Statement of Intent between the UK and Italy in September, committing the respective governments to working with the UK government to develop next-generation combat air capability.

Progress continues on the collaboration for the design and development phase of an indigenous fifth-generation fighter jet for the Turkish Air Force.

US Programmes

On the F-35 programme, price negotiations on Lots 12 to 14 concluded in the second half of 2019 and the business is ramping up to full-rate production by the end of 2020. In the period, 142 rear fuselage assemblies were delivered under the Low-Rate Initial Production contracts for Lots 11 to 13, bringing total deliveries on the programme to over 600.

At RAF Marham in the UK, following the declaration of Initial Operational Capability in 2018, we continue to support the customer in integrating the F-35 into its operational fleet and forward deployments.

BAE Systems continues to play a growing role on the F-35 sustainment programme including the supply of spares and technical support, software products, upgrades and specialist manpower services.

Saudi Arabia

The Group is reliant on the continued approval of export licences by a number of governments in order to continue supplies to the Kingdom of Saudi Arabia. Following extensions being granted by the German government to a number of export licences on joint collaborative programmes, we are working closely with industry partners and the UK government to continue to fulfil the contractual support arrangements in Saudi Arabia on the key European collaboration programmes.

In June 2019, the Court of Appeal of England and Wales directed the Secretary of State for International Trade to revisit the decision-making process for granting export licences for the sale of military equipment to the Kingdom of Saudi Arabia for possible use in the conflict in Yemen and to retake its decisions regarding such licences on that basis. The Company will assess the result of the retaking by the Secretary of State of such decisions, once they have been made. Pursuant to the Order of the Court, the Secretary of State undertook not to grant new licences for the export of arms or military equipment to Saudi Arabia for possible use in the conflict in Yemen until such decisions have been retaken. Both the Secretary of State and the other party to the proceedings have sought and obtained permission to appeal the Court's ruling to the Supreme Court.

In March 2018, the UK and the Kingdom of Saudi Arabia signed a Memorandum of Intent for the supply of a further 48 Typhoon aircraft, support and transfer of technology and capability. This would enable BAE Systems to continue with the localisation of defence capabilities in Saudi Arabia. Final assembly of all 48 Typhoon aircraft would be in-Kingdom.

The business continues to perform against the contract secured in 2018 to provide Typhoon support services to the Royal Saudi Air Force through to 2022.

The Saudi British Defence Co-operation Programme five-year funding agreement through to 2021 comprises a number of contracts, including support to the Tornado fleet and provision of Officer and Aircrew Training for the Royal Saudi Air Force, as well as engineering and logistics services for the Royal Saudi Naval Forces. These services continue to progress well. Previous issues relating to the availability of the Hawk trainer aircraft have been addressed and the aircraft availability is now consistent with the contractual requirements.

Four Hawk aircraft assembled in-Kingdom have been accepted and entered service with the Royal Saudi Air Force in the year. The company has delivered all of the 22 major units to meet this final assembly programme.

Work continues to reorganise our portfolio of interests in a number of industrial companies in Saudi Arabia. Riyadh Wings Aviation Academy LLC increased its ownership in 2019 to 23.5% in the Group's Overhaul and Maintenance Company (OMC) subsidiary. Additionally during the year OMC disposed of its 85.7% shareholding in Aircraft Accessories and Components Company. Following OMC entering into a heads of terms for the sale of its 50% shareholding in Advanced Electronics Company to Saudi Arabian Military Industries (SAMI), negotiations are continuing and the transaction is expected to take place in the first half of 2020.

Through the restructuring of the Group's portfolio of interests in its Kingdom of Saudi Arabia industrial companies, along with transformation activities to transfer local capability into these companies, we are working in partnership with SAMI to explore how we can collaborate to deliver further In-Kingdom Industrial Participation, in line with the Kingdom's Vision 2030.

Australia

The initial design and production readiness phase of the Hunter Class programme for the Royal Australian Navy continues to make progress, and the integration of ASC Shipbuilding into our Australian operations is progressing well. The first Integrated Baseline Review on the programme is expected to be completed in Q2 2020.

Progress continues on the Jindalee Operational Radar Network upgrade contract secured in 2018 from the Commonwealth of Australia, with the System Requirements Review completed and the first tranche programme baseline under review. On the sustainment contract, support to the three radar sites continues to see all operational milestones being achieved to plan.

Final acceptance of the Royal Australian Navy's two Landing Helicopter Docks is expected to be in 2020. Responsibility for future support has now been fully transitioned to Naval Ship Management.

Progress on the sustainment and upgrade of the Anzac fleet under the Warship Asset Management Alliance continues with the first of class, HMAS Arunta, now deployed back to operations. The second vessel, HMAS Anzac, has now undocked.

The Hawk Mk127 Lead-In Fighter project did not meet all aircraft availability requirements for the year. The pilot training programme however, was for the most part not impacted. The upgrade of the Hawk fleet to meet the F-35 training requirements has been completed.

Sustainment activity continues for the regional F-35 fleet at our Williamtown facility, with 13 aircraft now on base.

We were notified in September that we had been unsuccessful in our bid for the Land 400 Phase 3 Combat Vehicle programme.

MBDA

During 2019, MBDA secured development contracts for Enhanced Modular Air Defence Solutions in Italy and for Enforcer missile systems in Germany. Further contracts for Meteor were secured for additional tranches in France and Germany, as well as an integration contract for the South Korean KF-X fighter aircraft. Other contract awards include ASRAAM for Typhoon in Oman and in Qatar (the latter having already ordered Meteor and Brimstone) and a number of key support contracts for both European domestic and international customers.

In June, the MBDA/Lockheed Martin joint venture submitted to the German customer the updated TLVS (Ground-Based Air Defence System) proposal.

Good progress has been made on a number of development programmes including: the next-generation MICA missile; Spear Capability 3; and Aster Block 1 New Technology. In addition the Future Cruise/Anti-Ship Weapon (the Anglo/French co-operation programme to replace Storm Shadow/Harpoon in the UK and SCALP/Exocet in France) has successfully achieved its concept review, an important step in the decision to launch the following phases of the programme. Progress has also continued on production programmes, notably MICA missile deliveries for a number of international customers .

Looking forward

Forward-looking information for the Air reporting segment is provided on page 38.

1. Including share of equity accounted investments.

2. For alternative performance measure definitions see glossary on page 12.

3. International Financial Reporting Standards.

Segmental performance: Maritime

Maritime, with 16,300 employees¹, comprises the Group's UK-based maritime and land activities.