# BAE Systems Pandemic had no material impact on the financial performance in Q1

- Link: https://www.directorstalkinterviews.com/bae-systems-pandemic-had-no-material-impact-on-the-financial-performance-in-q1/412811038
- Published: 2020-04-03T07:12:56+01:00
- Author: Amilia Stone

**[BAE Systems plc](https://www.directorstalkinterviews.com/ftse-company/bae-systems-plc/ba.l)**(
LON:BA) today provided the following update in light of the ongoing COVID-19 pandemic.

** Current Business Priorities**

Given the critical nature of the products and services that we provide to a number
of nations, the key role we play in national economies and the local communities
in which we operate, the Group has a number of near-term priorities:

1)    Protect the wellbeing of our employees

2)    Meet customer priorities and support them as they face unique challenges

3)    Support our supply chain in dealing with pandemic related disruption

4)    Preserve and protect our capabilities  and the strength of the Group’s business
which is underpinned by our £45bn order backlog and programme positions

5)    Ensure that we maintain liquidity and balance sheet strength and thereby remain
robustly funded in anticipation of a potentially extended period of uncertainty.

**Our Approach**

Our primary focus through this challenging period is to ensure that our employees
are safe, our facilities are maintained securely, and the long-term future of our
business is protected. A core part of this approach involves working closely with
our customers and suppliers to support them in these difficult times. This will 
enable us to increase production for any affected operations safely and as quickly
as possible once permitted to do so. This will allow us to minimise any interruption
of supply to our customers and be in a position to support the economic recovery
phase for the countries in which we operate.

The Company is in a strong position with a large order backlog, mainly consisting
of long-term Government contracts across a wide international customer base. We 
have a strong balance sheet, a high quality, diverse portfolio and supply chains
closely aligned to the nations in which we operate. At the same time, the Company
is taking a number of actions to enhance its resilience and position the business
for an eventual return to a full operational tempo.

**Management Actions**

We have mobilised our business continuity plans in response to the COVID-19 outbreak
with governance and communication structures to facilitate rapid decision-making.
Significant steps have already been taken in line with relevant government guidance
and policy to safeguard the health and wellbeing of our employees and customers.
These include working from home for a significant proportion of colleagues throughout
the Group, with a number of sites on reduced operational levels. New procedures 
have been implemented at our sites including enhanced cleaning regimes, safe working
distance measures and distribution of protective equipment to our teams on site 
while they continue to meet the critical priorities of our customers. We have already
seen an exceptional response from our employees, customers and supply chains and
are liaising closely with our customers and suppliers to understand any changes 
in requirements and priorities during this time.

**Trading Update**

In the first quarter of 2020, the pandemic has had no material impact on the financial
performance of the Group. We have received significant awards recently on the M109A7
self-propelled howitzer programme, in US ship repair and on the THAAD missile programme
in Electronic Systems.

As the second quarter commences, we are seeing more significant disruptions. We 
continue to assess the impact on our business of the measures announced by national
governments, together with the actions the Group has taken to support customers 
and suppliers. In parallel, cost control measures have been implemented to help 
limit the financial impact of disruptions to the business.

**Liquidity position**

The liquidity of the Company is strong, with significant gross cash and access to
a £2bn Revolving Credit Facility committed to April 2024, along with other short
and long-term debt options.

From this position of strength the Group does typically have a working capital cash
outflow in the first half of the year and actions are being taken internally to 
optimise cash flow while maintaining operational resilience and capability. Additionally,
we are discussing funding profiles with our key customers to ensure our supply chain
remains strong and there is a continuity on critical defence and security programmes.

**Final Dividend Payment, Executive Director Remuneration and AGM**

The liquidity and business profile of the Group is strong. This remains however 
reliant on the goodwill of our customers and the financial strength of our supply
chain to maintain the drumbeat of production commitments both now and in the future.

Against a background of significant government and social challenges, and the uncertainty
as to the duration of the resulting disruption, the Board believes it is in the 
Company`s best interests, having regard to all our stakeholders’ interests, to defer
the decision on the 13.8 pence per share dividend proposed by the Board when announcing
the Company’s 2019 results in February. 

We recognise the importance of the dividend to our shareholders and whilst it remains
our intention to pay a dividend, the timing of any payment will be contingent on
prevailing macro-economic and social conditions over the coming months. An update
on the dividend payment will be provided at the Half Year results on 30 July 2020,
at which time the Board will also review remuneration of the Executive Directors.

The Company’s AGM will be held on 7 May 2020 as scheduled.  As public gatherings
of more than two people are currently prohibited, shareholders (other than two senior
executives) will not be able to attend the meeting in person.  Shareholders will
still be able to vote by proxy using the usual online and postal facilities.   A
poll will be taken on each of the resolutions put to the meeting and the results
will be posted on the Company website.  Given the deferral of the proposed dividend
payment, a resolution to approve a final dividend will not be put to Shareholders
at the AGM. 

**Acquisitions**

The proposed acquisitions of the Collins Aerospace Military Global Positioning System
business and Raytheon’s Airborne Tactical Radios business are still expected to 
complete in the coming months. As previously announced, appropriate financing is
already in place to enable completion. Both acquisitions are conditional on the 
completion of the Raytheon and United Technologies Corporation merger, now due to
complete on 3 April 2020, as well as other customary closing conditions and required
US regulatory approvals. 

**Pension**

The latest estimates show that the UK pension deficit funding position has not materially
changed since the year-end despite the market volatility in equities and bonds. 
The Group’s assumptions on the funding of its pension schemes are prudent and appropriately
reflect expected long-term asset returns and the term of the liabilities. The latest
valuation of the Group’s Main Scheme is dated 31 October 2019 and, subject to market
conditions, we intend to proceed with the funding contributions agreed as part of
this valuation as outlined in the Preliminary Results Announcement.

**Guidance Update**

Whilst the COVID-19 pandemic will impact BAE Systems previous guidance for 2020,
at this stage it is not possible to predict either the duration of the disruption
or its impact on the 2020 outturn. A further update will be provided when appropriate.

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