BAE Systems plc - IFRS 15 transition
Introduction
BAE Systems is today hosting a presentation for institutional investors and analysts to explain the impact of its transition to International Financial Reporting Standard (IFRS) 15, Revenue from Contracts with Customers. The new Standard, which is effective from 1 January 2018, requires the identification of performance obligations in contracts with customers and allocation of the total contractual value to each of the performance obligations identified. Revenue is recognised as each performance obligation is satisfied either at a point in time or over time. The Standard will replace International Accounting Standard (IAS) 11, Construction Contracts, IAS 18, Revenue, and all other existing revenue accounting requirements within IFRS.
Key points
· Revenue on the majority of contracts, currently being recognised based on the completion of milestones or deliveries, will cumulatively be recognised earlier
· Profit on contracts will continue to be recognised progressively as risks have been mitigated or retired
· Profit will be recognised earlier on shorter-term contracts in the Group's US businesses
· On contracts for both development and production in the Group's MBDA joint venture, there will be lower profit recognised during the development phase
· Some licence revenue in Applied Intelligence originally recognised upfront under IAS 18 will be deferred and recognised over the licence term under IFRS 15
· The estimated impact on the Group's underlying earnings per share1 for the year ending 31 December 2017 if IFRS 15 had been adopted would be a reduction of approximately 1p
· The impact of IFRS 15 on underlying earnings per share1 for the year ending 31 December 2018 and beyond is not expected to be material
· Most balance sheet contract work-in-progress replaced with a contract receivable representing accrued revenue, based on costs incurred, and including attributable profit
· No impact on the way in which BAE Systems manages its contracts
· No impact on lifetime revenue and profitability of contracts or the timing of cash receipts, which are determined by the terms and conditions of contracts with the customers
1. Basic earnings per share excluding amortisation and impairment of intangible assets, non-cash finance movements on pensions and financial derivatives, and non-recurring items.
Impact on BAE Systems' reported results
The following table shows the cumulative impact of applying IFRS 15 to 31 December 2016:
|
Cumulative adjustment |
|
£m |
|
|
Sales1 |
3,740 |
Revenue (increase in cumulative amount recognised to 31 December 2016) |
3,703 |
|
|
Electronic Systems |
118 |
Cyber & Intelligence |
(37) |
Platforms & Services (US) |
62 |
Platforms & Services (UK) |
69 |
Platforms & Services (International) |
(64) |
HQ |
- |
Underlying EBITA2 (increase in cumulative amount recognised to 31 December 2016) |
148 |
|
|
Subsidiaries |
220 |
Equity accounted investments |
(72) |
Underlying EBITA2 |
148 |
|
|
Profit after tax/net assets |
92 |
1. Revenue including the Group's share of revenue of equity accounted investments.
2. Profit for the year before amortisation and impairment of intangible assets, finance costs and taxation expense (EBITA) excluding non-recurring items.
3. Basic earnings per share excluding amortisation and impairment of intangible assets, non-cash finance movements on pensions and financial derivatives, and non-recurring items.
The income statement for the year ended 31 December 2016 will not be restated.
The Group will report its results for the year ending 31 December 2017 under IAS 11 and 18.
The Group's preliminary results announcement for the year ending 31 December 2017 on 22 February 2018 will include additional information on the impact of the adoption of IFRS 15 for the year ending 31 December 2017.
The estimated impact on the Group's underlying earnings per share3 for the year ending 31 December 2017 if IFRS 15 had been adopted would be a reduction of approximately 1p.
The Group's guidance for the year ending 31 December 2018 will be presented on a basis consistent with the new Standard. The impact of IFRS 15 on underlying earnings per share3 for the year ending 31 December 2018 and beyond is not expected to be material.
The Group's results announcement for the half-year ending 30 June 2018 will be the first to be prepared under IFRS 15 and will include restated comparatives for the half-year ended 30 June 2017.
For further information please contact:
Martin Cooper, Investor Relations Director
Telephone: +44 (0)1252 383040
Email: [email protected]
Analyst and investor presentation
A presentation, for analysts and investors, will be available via WebEx at 10am today (30 November 2017).
The presentation slides and a pdf copy of this announcement can be found on investors.baesystems.com. A recording of the WebEx will be available for replay later in the day.
About BAE Systems
At BAE Systems, our advanced defence technology protects people and national security, and keeps critical information and infrastructure secure. We search for new ways to provide our customers with a competitive edge across the air, maritime, land and cyber domains. We employ a skilled workforce of 83,500 people1 in over 40 countries, and work closely with local partners to support economic development by transferring knowledge, skills and technology.
1. Including share of equity accounted investments.
Cautionary statement
All statements other than statements of historical fact included in this document, including, without limitation, those regarding the financial condition, results, operations and businesses of BAE Systems and its strategy, plans and objectives and the markets and economies in which it operates, are forward-looking statements. Such forward-looking statements which reflect management's assumptions made on the basis of information available to it at this time, involve known and unknown risks, uncertainties and other important factors which could cause the actual results, performance or achievements of BAE Systems or the markets and economies in which BAE Systems operates to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. BAE Systems plc and its directors accept no liability to third parties in respect of this report save as would arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with Schedule 10A of the Financial Services and Markets Act 2000. It should be noted that Schedule 10A contains limits on the liability of the directors of BAE Systems plc so that their liability is solely to BAE Systems plc.
Issued by:
BAE Systems plc
London
