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Annual Report 2024
BAE Systems plc
baesystems.com
Delivering today.
Investing in tomorrow.
We partner with governments,
industry peers and companies,
large and small, to design,
buildand maintain advanced
defence and security solutions.
For decades, we have been
trusted by government
customers to develop the
nextgeneration of defence
andsecurity capabilities.
Strategic report
Overview 2–9
Our business at a glance 2
Chair’s letter 4
Chief Executive’s review 6
Strategy and performance 10–47
Our business model 10
Our strategic framework 12
Our key performance indicators 14
Our investment proposition 16
Our markets 18
Our investment in technology 20
Our investment in our people
andcommunities 24
Ourfinancialreview 30
Guidancefor2025 36
Segmentalreview 37
Responsible business 48–54
Climate and the environment 49
Ethics and compliance 52
Non-financialandsustainability
informationstatement 54
Risk 55–67
How we manage risk 55
Ourriskmanagementframework 57
Our principal risks 58
Viability statement 66
Governance
Chair’s governance letter 68
Board of directors 69
Board and executive management
diversityinformation 72
Governanceframework 74
Our stakeholders and
workoftheBoard 76
Applyingthe2018UKCorporate
GovernanceCodePrinciples 80
Compliancewiththe2018UKCorporate
Governance Code provisions 82
NominationsCommitteereport 83
Audit and Risk Committee report 86
Environmental,Socialand
Governance Committee report 91
Innovation and Technology
Committeereport 93
Remuneration Committee report 94
Quick read summary 98
ProposednewRemunerationpolicy 101
2025 remuneration framework 108
Annual remuneration report 109
Statutory and other
regulatory information 126
Financial statements
IndependentAuditor’sreport 134
Consolidatedfinancialstatements 144
Notes to the Consolidated
financialstatements 149
Companyfinancialstatements 210
Notes to the Company
financialstatements 212
Additional information
Alternative performance measures 220
Other information 225
Glossary 233
Shareholderinformation 236
Independent Auditor’s reasonable
assurance Report on ESEF prepared
AnnualFinancialReport 239
In this report
1BAE Systems plc  Annual Report 2024
We are supporting our customers so that they
can stay ahead of evolving threats across
land,sea, air, cyber and space.
Turn this page to reveal how our business
isstructured to achieve this.
Our business at a glance
Our financial highlights
Financial performance measures as defined by the Group
1
Financial performance measures as derived from IFRS
3
 SALES
£28.3bn
14% growth
2
2023 £25.3bn / 2022 £23.3bn
 FREE CASH FLOW
£2,505m
£88m lower
2023 £2,593m / 2022 £1,950m
 REVENUE
£26.3bn
14% growth
2023 £23.1bn / 2022 £21.3bn
 NET CASH FLOW FROM OPERATING ACTIVITIES
£3,925m
£165m higher
2023 £3,760m / 2022 £2,839m
 UNDERLYING EARNINGS BEFORE
INTEREST AND TAX (EBIT)
£3,015m
14% growth
2
2023 £2,682m / 2022 £2,479m
 ORDER INTAKE
£33.7bn
£4.0bn decrease
2023 £37.7bn / 2022 £37.1bn
 OPERATING PROFIT
£2,685m
4% growth
2023 £2,573m / 2022 £2,384m
 ORDER BOOK
£60.4bn
£2.4bn increase
2023 £58.0bn / 2022 £48.9bn
 UNDERLYING EARNINGS
PERSHARE(EPS)
68.5p
10% growth
2
2023 63.2p / 2022 55.5p
 ORDER BACKLOG
£7 7.8bn
£8.0bn increase
2023 £69.8bn / 2022 £58.9bn
 BASIC EPS
64.9p
6% growth
2023 61.3p / 2022 51.1p
 DIVIDEND PER SHARE
33.0p
10% growth
2023 30.0p / 2022 27.0p
1. ThedefinitionandpurposeofallperformancemeasuresdefinedbytheGroupisprovidedintheAlternativeperformancemeasuressectiononpage220.
2. GrowthratesforSales,UnderlyingEBITandUnderlyingEPSareonaconstantcurrencybasis(i.e.calculatedbytranslatingresultsfromentitiesinfunctional
currencies,otherthanpoundssterling,fortheyearended31December2023topoundssterlingattheaverageexchangerateofsuchcurrenciesfortheyear
ended31December2024).Thecomparativeshavenotbeenrestated.Allothergrowthratesandyear-on-yearmovementsareonareportedcurrencybasis.
3. InternationalFinancialReportingStandards.
BAE Systems plc  Annual Report 20242
Overview
Weareaworkforceof107,400
1
highlyskilledpeopleinmorethan40countries.Working
withourcustomersandlocalpartners,wedevelop,engineer,manufactureandsupport
productsandsystemsthatdelivermilitarycapability,protectnationalsecurityandkeep
criticalinformationandinfrastructuresecure.
 OUR PURPOSE
To serve, supply and protect those
whoserveandprotectus,inacorporate
culture that is performance driven and
valuesled.
Through careful long-term
managementandgovernanceofour
business, we will continue to create
valueforourstakeholders.
 OUR VISION
To be the premier international defence,
aerospace and security company.
 OUR MISSION
To provide a vital advantage to help our
customerstoprotectwhatreallymatters.
 OUR VALUES
At BAE Systems everything we do is
steeredbyourthreecorevalues:
TRUSTED,INNOVATIVE, BOLD.
 OUR LOCATIONS
Wemaintainleadingpositionsinmajordefenceandsecuritymarketsaroundtheworld
–includingtheUS,UK,theKingdomofSaudiArabiaandAustralia–aswellasestablished
positions in a number of other international markets.
Our business at a glance continued
TOTAL EMPLOYEES
1
107,400
2024 SALES
2
£28,335m
Employees
1
by location
US 34%
UK 46%
KingdomofSaudiArabia 6%
Australia 6%
Other 8%
Sales
2
by destination
US 44%
UK 26%
KingdomofSaudiArabia 10%
Australia 4%
Other international markets 16%
1. Asat31December2024andincludingshareofequityaccountedinvestments.
TotalfigureincludesHQemployeesof4,600.
2. SalesisdefinedintheAlternativeperformancemeasuressectiononpage220.
TotalfigureincludesHQandeliminations,seepage37.
3. TheGrouphasfiveoperatingsectorswhich,togetherwithHQ,make
itssixoperatingsegmentsasdefinedbyIFRS8OperatingSegments.
US
UK
Australia
Other
international
markets
Overview
 OUR SECTORS
Defence electronics
Design,manufactureandsupport
of electronic systems across a
range of military programmes,
including a leadership position in
the electronic warfare market.
Air support
andtraining
Provisionofsupportto
operational capability,
including maintenance,
upgrade, support and
training for Typhoon,
Tornado, Hawk and
support for the
F-35LightningIIfleet
around the globe.
Combat vehicles
Build and upgrade of tracked combat
vehicles,includingtheBradleyfighting
vehicles, M109 self-propelled howitzers,
ArmoredMulti-PurposeVehicles(AMPVs),
CV90, BvS10, Beowulf and M88 recovery
vehicles, and manufacture of Amphibious
CombatVehicles(ACVs).
Commercial avionics
equipment
Design,manufacture
andsupportofavionics
equipmentacross
multiple commercial
aircraft platforms,
including engine and
flightcontrols,andcabin
and cockpit systems, as
well as aftermarket
support services.
We focus our operations in five
3
key sectors:
Electronic Systems
READ MORE PAGE 38
EMPLOYEES
22,400
SALES
£7,189m
Electronic Systems
comprises the Group’s
US-andUK-based
electronic solutions,
including electronic
warfare systems,
navigation 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 electric drive
propulsion systems, as
well as space electronics,
spacecraft, ground and
tactical systems.
Platforms & Services
Platforms&Services,
with operations in the
US,Swedenandthe
UK,manufactures
andupgradescombat
vehicles, weapons and
munitions, and delivers
services and sustainment
activities, including
USnavalshiprepair
andthemanagement
andoperationoftwo
government-owned,
contractor-operated
ammunition plants.
READ MORE PAGE 40
EMPLOYEES
11,600
SALES
£4,390m
Air
Air comprises the
Group’sUK-based
airbuildandsupport
activitiesforEuropean
and international
markets,USprogrammes,
development of our
FutureCombatAir
SystemandFalconWorks
®
,
alongside our business
intheKingdomofSaudi
Arabia and interests in
our European joint
ventures:Eurofighter
andMBDA.
READ MORE PAGE 42
EMPLOYEES
27,800
SALES
£8,519m
Maritime
Maritime comprises
theGroup’sUK-based
maritime and land
activities, including
shipbuildandsupport
activities, major
submarine build
programmes,aswellas
ourAustralianbusiness.
READ MORE PAGE 44
EMPLOYEES
30,100
SALES
£6,187m
Cyber & Intelligence
Cyber&Intelligence
comprises the
US-basedIntelligence
&Securitybusiness
andUK-headquartered
DigitalIntelligence
business and includes
the Group’s cyber
security activities for
national security, central
government and
government enterprises.
READ MORE PAGE 46
EMPLOYEES
10,900
SALES
£2,411m
At BAE Systems, we provide some
of the world’s most advanced,
technology-led defence, aerospace
and security solutions:
 OUR KEY PROGRAMMES AND FRANCHISES
Aircraft
Primecontracting,systemsintegration,rapid
engineering, manufacturing, maintenance, repair
and upgrade, and military training for advanced
combat and trainer aircraft, including Typhoon and
workshareoftheF-35LightningIIprogramme.
Naval ship repair and support
Provisionofnavalshiprepairand
modernisationservicesintheUS
andUK,togetherwithsupportto
thenaviesoftheUS,UKandAustralia,
at home and on deployment.
Embedding
environmental
considerations
Provisionofelectric
drive systems for
low-andzero-
emission propulsion
systems with an
extensive installed
base on urban
transit buses.
Intelligence and cyber security
Deliveryofabroadrange
ofintelligence,securityand
synthetictrainingservicesto
enable military, intelligence and
civilian branches of international
governments to recognise,
manage and defeat threats.
Uncrewed and future
air system capabilities
Developmentoffuture
airsystemcapabilities,
including joint investment
withtheUKGovernment
and industry in a next-
generation combat
airsystemunderthe
Tempestprogramme.
Submarines
Designandmanufacture
of seven Astute Class
nuclear-powered attack
submarines and four
DreadnoughtClass
nuclear-powered
submarines for the
RoyalNavy.Earlydesign
and mobilisation activities
ontheSSN-AUKUS
programme to deliver
areplacementforthe
Astute Class.
Space
Leadingcapabilitiesin
thedesign,buildand
operation of satellites
andsatellitesystems,
space electronics and
instrument payloads.
Complex warships
Designandmanufacture
ofeightType26frigates
fortheRoyalNavyandthe
firstthree(Batch1)Hunter
ClassfrigatesfortheRoyal
AustralianNavy.Providerof
the warship design for the
Canadian Surface Combatant
(CSC)programme.
Weapon systems
andmunitions
Designandmanufactureof
naval gun systems, munitions,
high-qualityenergeticsand
propellants, torpedoes,
radars, naval command and
combat systems, artillery
systems, missile launchers
and,throughour37.5%
interestinMBDA,missiles
andmissilesystems.
3BAE Systems plc  Annual Report 2024
Additional informationFinancial statementsGovernanceStrategic report
Events this year have underscored how
the success of our business is underpinned
by its continued evolution in the face
ofchange. Your Company now has a
unique portfolio of international defence
and security businesses.
Chair’s letter
Dear Shareholders
2024 was another year of strong operational
and financial performance for the Group,
and also a year in which significant progress
was made in key strategic areas.
This has been achieved against a backdrop
ofglobal uncertainty, with elections and
changes in government in our key markets
inthe UK and US, and continued conflict in
Ukraine and elsewhere. Our management
team has shown resilience andleadership
this year, focusing on providing our
customers with the products and services
they need and helping them toadjust to
rapidly changing environments.
Our strategy
Events this year have underscored how the
success of our business is underpinned by
itscontinued evolution in the face of change.
Our current footprint has been created
through past mergers and acquisitions in
ourkey markets, and through our own
research and product development
initiatives. Your Company now has a
uniqueportfolio of international defence
and security businesses.
The strategy review process is an integral
part of the Board’s work through the year,
with deep dive sessions and discussions
thatinform and shape the business plans
approved for following years. Our focus is
both on ensuring that strong operational
performance continues to translate into
excellent financial results and also on
shaping our technological and strategic
focus in a changing environment. This
longer-term focus is also key for workforce
planning and recruitment to ensure that we
have the best talent available to execute on
our plans.
4
BAE Systems plc  Annual Report 2024
Overview
Over the course of this year, I have been fortunate to visit
many of our sites across our core markets. I am proud
ofthe world-class products and services we create and
the talent, dedication and sense of purpose of our
employees is clear wherever I go.
The Board is pleased with the milestones
met this year in our ongoing keystrategic
projects. Towards the close of the year, we
celebrated reaching agreement with our
industry partners in Italy and Japan to form
anew joint venture company, subject to
regulatory approvals, to design and develop
next-generation fighter jets under the
Global Combat Air Programme (GCAP).
Earlier in the year, we were formally selected
to deliver a fleet of nuclear-powered
submarines for Australia, alongside our
localpartner, as part of the wider AUKUS
security pact.
During the year, a key area of focus was
thecompletion and integration of the
acquisition of Ball Aerospace in the US,
nowknown as Space & Mission Systems
(SMS). The Board very much enjoyed
thevisitit made to SMS in the autumn.
Wehavealso completed acquisitions
intheUK to strengthen our electronic
warfare and counter-uncrewed
airsystem(UAS) capabilities.
Our people and culture
Over the course of this year, I have been
fortunate to visit many of our sites across
ourcore markets. I am proud of the
world-class products and services we
create,and the talent, dedication and
senseof purpose of our employees is
clearwherever I go.
Our employee base has grown during the
year to 107,400, partly through acquisitions
but also through recruitment focused on
building key skills for the future. This year,
inthe UK, we hired around 2,300 graduates
and apprentices, who joined our early
careers training programmes. I am always
impressed by the attitude and determination
of our early careers trainees. Working in
defence is not universally appreciated as
acareer choice, but we can offer young
people a structured and opportunity-rich
environment to start their careers.
Remuneration policy
Since I took over as Chair after the Annual
General Meeting (AGM) in 2023, I have been
fortunate to meet with many shareholders
and other stakeholders. It is very clear to me
that our current seniorteam, led by Charles
Woodburn, isuniversally held in high regard.
This year we are proposing changes to our
Remuneration policy, in particular to the
long-term incentives that are designed to
retain and reward our senior leaders over
thelonger term. We compete for top talent
in a restricted international market and
ourfocus on engineering skills and
nationality requirements for our leaders
makes recruitment especially challenging.
Itis therefore important that our
remuneration remains comparable to
UK-based multi-national peers. We will
continue to set stretching targets to ensure
that bonus payments and LTIP vesting
aredelivered when performance and
shareholder value creation are strong.
The proposed changes to our Remuneration
policy are outlined in more detail in the
remuneration report on page 101.
Capital allocation
This year has again been one of strong
freecash flow, underpinned by our
growingorder backlog. The Company has
continued todistribute significant capital
toshareholders through our ongoing
sharebuyback programmes and through
dividends. Strong cash generation
hasallowed the Company to continue to
invest in research and development (R&D)
and make some strategically important
acquisitions. The Board has recommended
afinal dividend of 20.6p per share, making
atotal dividend for the full year of 33.0p.
Thisis an increase of 10% on last year
andthe 21st year of dividend growth
foryour Company.
Governance
During the year, a focus for the Board
andAudit and Risk Committee has been on
refreshing our approach to risk to make it
more consistent across the business. As you
will see from the summary of principal risks
on page 56, the Board’s assessment of
principal risks has remained consistent,
although risk identification and mitigation is
now more aligned to the business planning
process. The Board has also continued its
focus on succession planning and talent
management. There is more detail on
governance in the report on page 83.
Board changes
During the year, Lord Sedwill stood down
from the Board because of his evolving
parliamentary and other commitments.
Wewill miss his insight and perspective,
especially on security and defence
matters,and I would like to thank him
forhiscontribution.
To manage the evolution and skills profile of
the Board, the search for new non-executive
directors is well advanced. As you will see
from the Board profiles on pages 69 to 71,
Dame Elizabeth Corley is our most
experienced non-executive director, having
joined the Board in 2016. To ensure that we
can benefit from her deep understanding of
the Groupduring this year’s strategic review,
Elizabeth has kindly agreed to remain on
theBoard until the end of 2025. This should
also ensure a smooth transition for her
committee memberships.
In closing, I would like to thank our colleagues
across the world for all they have done to
make 2024 another strong year for the
Company. The culture and commitment of
our workforce is at the heart of the success
of your Company.
Cressida Hogg CBE
Chair
5
BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
As you will see throughout this report, 2024
hasbeen a year of real progress for the Group.
Wedelivered strong operational and financial
performance, grew our workforce by a net 7,600
employees and completed the acquisition of
BallAerospace to enhance our space portfolio.
Chief Executive’s review
Overview
In November 2024, BAE Systems
celebratedthe 25th anniversary of
BritishAerospace and Marconi Electronic
Systems coming together to create the
Company we are today.
Even as the world around us has
changeddramatically, BAE Systems’
deepcommitment to collaboration and
building long-term partnerships means that
government customers have trusted us for
decades todevelop the next generation
ofdefence and security capabilities.
Today, nations are facing increasingly
variedand complex threats to security.
Thesegrowing threats have reinforced the
essential nature of our work and highlighted
the need for continued global investment
indefence.
By focusing on operational excellence,
contracting discipline and growing our
workforce, we are consistently delivering
critical capabilities and technologies for
ourcustomers worldwide.
I am proud to report that the fundamentals
of the business are strong and 2024 was
another year of strong operational and
financial performance, extending our track
record of delivery.
By focusing on operational excellence
weare consistently delivering critical
capabilities and technologies for our
customers worldwide.
Charles Woodburn CBE
Chief Executive
 ORDER BACKLOG
£7 7.8bn
2023 £69.8bn / 2022 £58.9bn
6 BAE Systems plc  Annual Report 2024
Overview
WWW.BAESYSTEMS.COM/ARTICLE
topartner with the Australian submarine
builder ASC Pty Ltd to deliver Australia’s
SSN-AUKUS programme.
Our financial performance
We finished the year by delivering records
across our key financial measures of order
backlog, sales, underlying EBIT, underlying
EPS and dividend per share.
On a constant currency basis, we grew sales
and underlying EBIT by 14% and underlying
EPS by 10%. We delivered £2.5bn of free
cash flow, taking our three-year cumulative
free cash flow to over £7.0bn.
Our order intake was £33.7bn which,
combined with £3.0bn of order backlog
inSMS, pushed our order backlog to a
record£77.8bn.
We ended 2024 with a strong balance
sheet,featuring a cash position of £3.4bn,
after we returned a further £1.5bn to
shareholders in the year. Our net debt
(excluding lease liabilities) of £4.9bn is an
increase of £3.9bn and primarily reflects
M&A activity, including the $5.5bn (£4.4bn)
Ball Aerospace acquisition which was
partially funded by debt raised during
theyear.
Our strong financial performance gives
usthe strategic flexibility to invest in the
business to support its long-term strength
and expected growth, whilst maintaining
focused and disciplined capital allocation.
We know that our success relies on
ourpeople, their unwavering focus
onprotecting those who protect us and
ourtireless commitment to responsible
business practices. We continueto invest
inour people and ourbusiness for the long
term, which together with our broad
geographic and product diversity, positions
us well for moregrowth in the years ahead.
Delivering for our customers
We made good operational progress
in2024, as our highly skilled employees
continued to support our customers,
helpingthem to stay ahead of evolving
threats across land, sea, air, cyber and space.
Our focus on operational excellence
continues to benefit our customers and
shareholders, as we execute on complex,
long-term programmes like Dreadnought,
Type 26 and Hunter Class frigates, Typhoon
and F-35 jets, electronic warfare systems,
combat vehicles, and many other
programmes across our business.
We also maintained momentum on key
strategic international collaborations,
whichwill define the next generation
ofcapabilities and underpin our business
fordecades to come. Working with our
industry partners in Italy and Japan, we
reached agreement to form a joint venture,
subject to regulatory approvals, to design
and develop next-generation fighter jets
under GCAP while, under the AUKUS
announcements, we have been selected
Investing in tomorrow
Investing in our people, technologies
andfacilities is essential to achieving our
ambitions and ensuring our business has
theagility to anticipate and respond to the
emerging threats our government customers
face in a constantly changing world.
We grew our global workforce by 7,600,
including employees within our SMS business,
to 107,400 employees. Given the long-term
natureof many of our programmes, we
areparticularly focused on early careers to
sustain our talent pipeline, recruiting around
2,300 apprentices and graduates in the UK.
We increased our self-funded R&D to £357m,
inkey technology areas including electronic
warfare, autonomy, laser-guided weapons,
UAS, synthetic training, electrification
applications and space solutions.
We also increased capital expenditure,
compared to 2023, taking it to over £1.0bn,
as we continue to develop and modernise
our systems and facilities to deliver an
effective working environment and build
greater capacity for the future, focused
primarily on maritime, munitions, combat
vehicles and electronics.
Shaping the portfolio
Alongside our organic investment, we
areevolving our portfolio with a focus
ontheadvanced technologies we believe
willbe highly relevant as our customers
address evolving global threats and
whichwill help drive higher growth.
Space & Mission Systems
After completing the acquisition of Ball
Aerospace in February, we established
cross-functional teams to focus on key
integration steps to minimise disruptions
and support employees, while maintaining
our commitments to the SMS team’s
existing customers and contracts.
As we proceeded through integration,
wemigrated the SMS employees to our
business processes, systems and policies
and sought best practices from both sides
of the transaction to further streamline
and enhance our operational efficiencies
and effectiveness. To pursue future
growth, we also launched a synergy
framework composed of a delivery council,
executive symposium and recurring
workshops. These ongoing meetings seek
to actively discover revenue synergy
opportunities in key priority areas of space,
electronic warfare, C4ISR systems, support
services and more. We have already
identified opportunities to leverage
Electronic Systems payloads in
combination with SMS mission expertise.
Going forward, we will continue to focus
on building a pipeline of adjacent and
transformational prospects to offer new
and enhanced solutions to our customers.
7
BAE Systems plc  Annual Report 2024
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Chief Executive’s review continued
Notably,we completed the largest
acquisition in the Company’s history:
theacquisition of Ball Aerospace in the
US,forming our new SMS business
andsignificantly enhancing our presence
inthe growing space market.We also made
a number of smaller acquisitions in the UK,
which further strengthen our UAS and
counter UAScapabilities, and divested
certain non-core business areas.
Our capital distribution
The strength and outlook for the Group,
alongside our disciplined capital allocation,
means that after increasing investments
inour people, technologies and capital
expenditure, we were able to increase
returns to shareholders. During the year,
theCompany repurchased £555m worth
ofshares and paid £937m in dividends,
returning £1,492m to shareholders.
TheBoard has recommended a 20.6p
finaldividend for approval by shareholders
at the 2025 AGM, which will take the
totaldividend in respect of 2024 to33.0p
–an increase of 10% on last year.
Our market differentiation
Our business has a unique combination
ofadiverse geographic footprint and
multi-domain capabilities. We believe
ourtechnologies, expertise and global
reachposition BAESystems as a leader
inourindustry and enable us to support
ourcustomers to meet the elevated threat
environment of today and tomorrow.
Thisbreadth continues to be a real strength
and adifferentiator.
Looking ahead, our key growth drivers are
spread across major markets and include
huge multi-national endeavours, including
GCAP and AUKUS, which are significant for
the Group in the medium and long term,
andhighlight the global reach, scale and
longevity of our business.
AUKUS
In March, the Australian Government
announced that we had been selected
topartner with ASC Pty Ltd to deliver
Australia’s SSN-AUKUS Programme,
which includes the build of nuclear-
powered submarines in Australia as
partof the AUKUS trilateral security pact
between theUS, the UK and Australia.
SSN-AUKUS will be a state-of-the-art
conventionally-armed, nuclear-powered
submarine (SSN) designed to leverage
thebest of submarine technology from all
three nations and dominate the undersea
battlespace. This will build upon the
UK’snext-generation SSN design and is
expected to combine the strengths and
innovations of each AUKUS partner into a
highly capable platform. InNovember, we
entered into a mobilisation arrangement
together with ASC SSN-AUKUS Pty Ltd
and the Australian Submarine Agency to
work together to develop detailed plans,
schedules and workforce initiatives
forthe Australian build programme
oftheSSN-AUKUS submarines. These
arrangements follow on from the £3.95bn
we secured from the UK Ministry of
Defence in 2023 to progress the detailed
design of the SSN-AUKUS submarines,
aswell as to procure long-lead items
andmake significant infrastructure
investments atour Barrow-in-Furness,
UK, siteto support the programme.
 RETURNS TO SHAREHOLDERS
£1,492m
2023 £1,418m / 2022 £1,590m
 THREE-YEAR CUMULATIVE FREE CASH FLOW
>£7.0bn
8 BAE Systems plc  Annual Report 2024
Overview
WWW.BAESYSTEMS.COM/ARTICLE
Responsible business
The work we do is vital. We support our
government customers to fulfil their primary
obligation to keep their citizens safe, whilst
contributing to the economic and social
development of the communities and
nations in which we operate, helping to
build a stronger and more secure future.
Our people are the heart of everything we
do and it is critical that we attract and retain
the very best talent so that we can support
our customers’ requirements and our
ownlong-term growth. We remain fully
committed to fostering a workplace
cultureand environment where everyone
feels they belong and can thrive, which
includes investing in our people’s skills
development from early careers through
tolifelong learning.
The safety, health and wellbeing of our
people is an enduring priority. Despite
ourfocused efforts, our safety performance
deteriorated in 2024 and, as a leadership team,
we are committed to strengthening our
safety management programme to improve
our performance in 2025 and beyond.
We continue to focus on resource efficiency,
ensuring that our energy and infrastructure
strategies reduce our greenhouse gas
emissions across our operations, while
supporting our business growth.
We do all of this while maintaining a
robustgovernance structure and high
standards. This includes continuing
tooperate under tight regulation and
complying fully with applicable trade
controls and sanctions.
Summary
As you will see throughout this report,
2024has been a year of real progress for
theGroup. We delivered strong operational
and financial performance, increased
self-funded R&D and capital expenditure,
grew our workforce by a net 7,600
employees and completed the acquisition
ofBall Aerospace to significantly enhance
our space portfolio.
Our order backlog, positions on major
programmes and our continued focus
onoperational excellence and financial
discipline, provide a high level of visibility
forour shareholders on sales growth, cash
generation and capital returns in the years
tocome.
I want to thank my colleagues – as well as our
partners, suppliers and trades unions – for all
the hard work and commitment they deliver
every day to achieve these results.
Together, we are well positioned for another
productive year, ensuring we deliver the
capabilities our customers need. As we
moveforward, we will continue to leverage
our technological strengths, build on our
strategic partnerships and remain focused
on our mission.
Thank you to our shareholders for your
support of the Group and our strategy for
value creation. We look forward to another
productive and rewarding year in 2025.
Charles Woodburn CBE
Chief Executive
GCAP
In December, we reached an agreement
with our international partners, Leonardo
SpA and Japan Aircraft Industrial
Enhancement Co Ltd (JAIEC), to form a
new joint venture company for GCAP,
subject to regulatory approvals. Each
partner will hold a one-third shareholding
inthe new joint venture, which will be
accountable for the design, development
and delivery of the next-generation
combat aircraft and will remain the
design authority for GCAP for the life
ofthe product, expected to go out
beyond 2070. The agreement builds on
the strong trilateral government, defence
and industrial cooperation between the
UK, Japan and Italy on GCAPsince it
wasestablished in December 2022.
9
BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
D
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Our business model
Our strategy runs
through our core
activities and
provides areas of
focus to deliver
value to our
stakeholders.
READ MORE PAGE 76
A
 Identifying customerneeds
– We have established positions
onlong-term programmes.
– We build strong and collaborative
relationships with our customers.
– Our position as a trusted supplier allows
usto pro-actively identify emerging trends
and opportunities for growth ahead of
published customer requirements.
B
 Research & development
– Technology and innovation underpin
ourstrategic direction, the evolution of
current franchises and the development
ofnew products and services.
– We partner with academic and industry
leaders todevelop new technologies that
differentiate these products and services.
– We have a clear focus for our R&D spend,
and customer-funded research that aligns
to current and future operational needs.
C
 Bidding and contracting
– We focus on value for our customers
whileeffectively managing risk.
– We maintain a record of delivery
oncomplex projects.
– We develop relationships with
anetworkof suppliers supporting
economic prosperity and development.
D
 Design and developing
– Weprovide engineering expertise
indeveloping cutting-edge products
andservices.
– Working with our customers to
considerthe operational resilience
ofourproducts.
– Our products are designed and
developedin a way that provides
forfuture flexibility with the ability
toupgradein an agile manner.
E
  Advanced manufacturing,
commissioning and integration
– We focus on operational excellence
withsafety as a priority.
– We continuously invest in advanced
manufacturing techniques and facilities.
– We manage complex projects and
collaborations across global supply chains.
F
  Services, sustainment
andupgrade
– We provide competitive services that
addvalue for our customers.
– We leverage technical expertise, which
isacquired through product design
anddevelopment, to differentiate our
service offerings.
– We use flexibility and responsiveness
tomaximise the lifecycle availability
ofourcustomers’ equipment.
The core activities we undertake to create value for stakeholders:
Our strengths and resources provide the foundations to our business model:
Our people Our technology Our partners and key suppliers Our governance framework
READ MORE PAGE 24 READ MORE PAGE 20 READ MORE PAGE 76 READ MORE PAGE 74
10 BAE Systems plc  Annual Report 2024
Strategy and performance
 CREATING VALUE
Disciplined capital allocation
We operate with a value-enhancing model, undertaking our core business activities
with a clear, consistent and careful capital allocation.
We maintain flexibility in how and when we apply our capital allocation policy
toensure operational flexibility and retain balance sheet strength.
Investment in our business is critical to our success
As a responsible business, we continually invest in our technology, people, partners and facilities which creates value
for all our stakeholders, including the communities and environment in which we operate.
Leading to consistent and solid cash conversion
Research, design and
developmentactivities
Creating the next generation of defence
and security capabilities that are needed
tokeep our customers safe.
Share buybacks
We have commenced the up to £1.5bn
share buyback programme, which was
announced in August 2023, and have
completed c.£2.3bn of share repurchases
since 2021.
Capital investment
Enabling us to deliver new facilities to
provide world-class work environments
that support innovation, production
andteamwork to deliver cutting-edge
technology to our customers.
Dividends
We have a strong track record of
delivering financial returns for investors.
We plan to pay dividends in line with our
policy of long-term sustainable cover of
around two times underlying earnings.
Investment in our people
We support high-value jobs in our business
and in our supply chains. This includes
direct employment as well as indirect
employment in our supply chain and jobs
supported by the consumer spending of
our employees and supply chain.
Mergers and acquisitions
We completed the largest acquisition
inthe Group’s history: the $5.5bn (£4.4bn)
acquisition of Ball Aerospace in the
US.Wealso made a number of smaller
acquisitions, in the UK, which further
strengthen ourUAS and counter-UAS
capabilities.
APPRENTICES AND GRADUATES
INTHEUK
6,500
2023 5,500
M&A INVESTMENT
£4.8bn
including acquisition of Ball Aerospace
FREE CASH FLOW
£2,505m
2023 £2,593m
CAPITAL EXPENDITURE (CAPEX)
£1.0bn
2023 £0.8bn
TOTAL DIVIDEND PER SHARE
33.0p
2023 30.0p
R&D SPEND
1
£1.9bn
2023 £2.3bn
VALUE OF SHARES REPURCHASED
£0.6bn
2023 £0.6bn
1. Customer and Company-funded.
11BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Our strategic framework
 OUR VISION  OUR MISSION
 SUPPORTED BY OUR STRATEGIC PRIORITIES
 OUR STRATEGY
 OUR VALUES
To be the premier international
defence, aerospace and
securitycompany.
Drive operational
excellence
To provide a vital advantage to
helpour customers to protect
whatreally matters.
Continuously improve
competitiveness and efficiency
Centred on maintaining and growing our core franchises and securing growth opportunities through
advancing our three strategic priorities whilst demonstrating our Company Behaviours in all that we do.
Providing the link between our longer-term strategy and near-term business objectives for all our employees.
Trusted,
innovative
and bold.
Advance and further
leverageourtechnology
1
Sustain and grow
ourdefencebusiness.
– Deliver on our commitments
effectively and efficiently.
– Develop our offerings to meet
the future defence and
securityneeds.
4
Inspire and develop
adiverse workforce
todrivesuccess.
– Ensure we diversify our thinking
andharness the full potential
ofourpeople.
– Create an environment in which
our people willthrive.
2
Continue to grow
ourbusiness
inadjacentmarkets.
– Take our capabilities into
adjacent attractive markets.
– Develop dual-use opportunities
delivering civil solutions to
leverage back to meet challenges
for our defence customers.
3
Develop and expand our
international business.
– Mature our international
activities, broadening
ourofferings to our
establishedcustomers.
– Develop relations with
additionalcustomers.
5
Enhance financial performance
and deliver enduring growth
inshareholder value.
– Seek opportunities to drive
efficiency,standardisation
andsynergies.
– Identify opportunities
forhigher-margin
offerings.
6
Advance and
integrateour
sustainability agenda.
– Emphasise the vital role
weplay in protecting
countries and civilians and
supporting our communities.
– Progress the delivery of our
decarbonisation strategy.
Our strategy
iscomprised of
sixlong-term areas
of focus that help us
deliver our vision
and mission.
12 BAE Systems plc  Annual Report 2024
Strategy and performance
 OUR STRATEGY IN ACTION
Executing smart growth to meet
thedemand surge for CV90s
Growing our Hägglunds business smartly
and rapidly is a top priority and critical to
profitably delivering its extensive order
book, including the CV90 contracts from
Sweden and Denmark worth $2.5bn
(£2.0bn). Our Hägglunds team is investing
more than $200m (£160m) to add capacity
and scale operations, while also teaming
toexpand production capacity in customer
countries. Thisapproach benefits our
partners’ local economies and communities
and also diversifies the CV90 industrial base.
The new CV9035MkIIICs for Sweden and
Denmark will be built to the same standard
as the CV90 mid-life upgrades for the
Netherlands, embedding years of
combat-proven experience, continuous
improvements and data from the ten
nations operating CV90 fleets. Beyond new
facilities and infrastructure, our Hägglunds
team is investing in talented people, partners
and suppliers to successfully deliver the
leading combat capabilities of the CV90 in
a mission-driven, customer-focused culture.
Glasgow Shipbuild Hall
We continue to invest in our people and
facilities in Glasgow to transform the way
we design and build warships and help to
secure the long-term future for complex
shipbuilding on the River Clyde.
Our new state-of-the-art Applied
Shipbuilding Academy opened in 2024,
greatly enhancing our ability to develop
and train our Naval Ships workforce, from
new starters to senior leaders, and ensuring
Scottish shipbuilding has a thriving
workforce for generations tocome.
We also significantly advanced the
construction of our new ship build hall
inGovan, UK, in 2024, which is expected
to becompleted in 2025. Large enough
for two Type 26 frigates to be constructed
side-by-side and designed to accommodate
up to 500 workers per shift, this new
facility will boost the site’s efficiency and
safety and help to ensure that adverse
weather conditions do not impact our
shipbuilding operations.
These investments are key elements of
ourongoing £300m modernisation and
digitalisation of our shipbuilding facilities
in Glasgow, UK.
LINKS TO STRATEGY
1
2
3
LINKS TO STRATEGY
1
4
5
6
13BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Our KPIs are aligned to business strategy and are used
toactively monitor performance.
Our key performance indicators
 LINKS TO EXECUTIVE REMUNERATION
 FINANCIAL
1
Executive directors’ annual and long-term
incentives are assessed using a combination of
theGroup’s KPIs and other objectives designed
tomeet the Group’s strategy. Metrics, which are
both financial and non-financial, aredetermined
and weighted according to business priorities
andmay be structured as targets to be achieved,
or underpins targets which, if not achieved, would
reduce payouts. 75% of annual incentive targets
relate to financial metrics aligned with long-term
earnings and cash targets.
The non-financial element is based on
acombination of personal performance
objectivesthat provide a clear line of sight
toourstrategic objectives including those
inrelation to environmental initiatives, safety
andworkforce demographics measures.
PURPOSE
Enables management to monitor
the revenue of both the Group’s
own subsidiaries as well as
recognising the strategic
importance in its industry of
itsequity accounted investments,
to ensure programme
performanceis understood
andinline with expectations.
PROGRESS IN 2024
Sales increased 14%, on a
constantcurrency basis, with all
our operating segments seeing
anincrease in sales in the year.
Oursales growth further
benefitted from M&A activities,
including the acquisition of Ball
Aerospace (now SMS). Excluding
the impact of all M&A in the year,
our sales growth was 9% on a
constant currency basis.
PURPOSE
Provides a measure of operating
profitability, excluding one-off
events or adjusting items that
arenot considered to be part
oftheongoing operational
transactions of the business, to
enable management to monitor
theperformance of recurring
operations over time, and which
iscomparable across the Group.
PROGRESS IN 2024
Underlying EBIT increased 14%,
onaconstant currency basis.
Wesaw increases across all
operating segments, with the
exception of Cyber & Intelligence
which has remained steady on
theprior year.
PURPOSE
Provides a measure of the Group’s
underlying performance, which
enables management to compare
the profitability of the Group’s
recurring operations over time.
PROGRESS IN 2024
Underlying EPS increased 10%, on
aconstant currency basis. The main
driver behind the increase was
improved underlying EBIT which
was offset by additional finance
costs incurred as a result of debt
raised during the year, primarily to
fund theBall Aerospace acquisition.
Formore detail on the movement
inunderlying EPS in the year see
page 33.
PURPOSE
Provides a measure of cash
generated by the Group’s
operations after servicing debt
andtax obligations, available
foruse in line with the Group’s
capital allocation policy.
PROGRESS IN 2024
Free cash flow of £2,505m reflected
a high level of advanced customer
payments received towards the
endof the financial year and
strongoperational cash conversion.
This was offset by increased capex
spend and higher finance costs.
REMUNERATION REPORT PAGE 109
OUR FINANCIAL REVIEW PAGE 30
Sales
1
3
5
Underlying EBIT
3
5
Underlying EPS
3
5
Free cash flow
1
5
1. The definition and purpose of all performance measures defined by the Group are provided in the Alternative performance measures section on page 220.
20232022
2024
£23,256m
£25,284m
£28,335m
20232022
2024
£2,479m
£2,682m
£3,015m
20232022
2024
55.5p
63.2p
68.5p
20232022
2024
£1,950m
£2,593m
£2,505m
14 BAE Systems plc  Annual Report 2024
Strategy and performance
 LINKS TO STRATEGY
 NON-FINANCIAL
PURPOSE
Allows management to monitor
theorder intake of the Group’s
ownsubsidiaries, as well as its
strategically important equity
accounted investments,
providinginsight into future
years’sales performance.
PROGRESS IN 2024
Order intake remained high in
2024,with the previous few years
representing a significantly high
level including a record of £37.7bn
in 2023. For details of significant
orders in the year see page 33.
PURPOSE
We are focused on strengthening
our safety management
programme. Our accident rate is
usedto assess workplace safety
improvements and ensure our
safety efforts are aligned to
theworking environment.
PROGRESS IN 2024
The overall safety performance
ofour operations decreased
withour recordable accident rate
increasing by 8%. The majority
ofthis deterioration relates to
anincrease in recordable injuries
within our US, Submarines and
Australian businesses. The
number of major injuries, our
measure of severity, increased
by18%, from 40 to 47, during
2024. This was most marked
within our Air sector and Group
functions teams.
PURPOSE
Allows management to monitor
indebtedness of the Group,
toensure the Group’s capital
structure is appropriate and
capitalallocation policy decisions
are suitably informed.
PROGRESS IN 2024
During the year, net debt
(excluding lease liabilities)
hasincreased by £3,923m
to£4,945m. The key driver
behindthe increase was the
$5.5bn (£4.4bn) acquisition of
BallAerospace which was funded
through debt raised during the
year as well as existing cash
resources. For further details
ofthe movement in net debt
(excluding lease liabilities)
seepage34.
PURPOSE
Our roadmap to support
ournear-term GHG reduction
target across our operations
(Scope 1 and 2) by 2030
isunderpinned by an annual
target to reduce operational
GHGemissions by 4.2%.
PROGRESS IN 2024
In 2024, we achieved a 6.0%
GHGemissions reduction
excluding our SMS business.
Postthe integration of SMS into
our environmental data systems
during late 2024, in line with
ourGHG basis of reporting
andmethodology statement,
during 2025 we will be
recalculating our 2020 GHG
emissions baseline, to include
GHG emissions of this business.
CLIMATE AND THE
ENVIRONMENT PAGE 49
SAFETY, HEALTH AND
WELLBEING PAGE 26
1
Sustain and grow our
defencebusiness.
2
Continue to grow our business
inadjacent markets.
3
Develop and expand our
international business.
4
Inspire and develop a diverse
workforce to drive success.
5
Enhance financial performance
and deliver enduring growth
inshareholder value.
6
Advance and integrate our
sustainability agenda.
Net debt (excluding
leaseliabilities)
1
3
5
Recordable accident rate
(per 100,000 employees)
4
6
Percentage change in
Scope 1 and 2 greenhouse
gas (GHG) emissions
1
6
Order intake
1
2
3
20232022
2024
485
424
459
20232022
2024
– 9.6%
–11.0%
–6.0%
20232022
2024
£37.1bn
£37.7bn
£33.7bn
20232022
2024
£(2,023)m
£(1,022)m
£(4,945)m
15BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Our investment proposition
 OUR DIVERSE GEOGRAPHIC FOOTPRINT
 OUR SEVEN KEY ADVANTAGES
We focus on careful long-term management
and governance of our business to deliver
value for all our stakeholders. We are poised
for further top-line growth and profitability
based on robust end markets, our operating
model and the strategic actions we are
taking, presenting acompelling investment
case for current andprospective investors.
– Astute and Dreadnought
submarine build
– SSN-AUKUS submarine design
and future build
– Naval ship build and support
– Typhoon capability upgrades,
support and UK sponsored
export sales
– F-35 (aft fuselage) and support
– GCAP/Tempest
– Digital Intelligence
– Munitions
– Electronic warfare
– Precision strike
– C4ISR
– Controls and avionics
– Intelligence & Security
– Combat vehicles
– US Ship Repair
– Munitions
– Space
– Kingdom of Saudi
Arabiasupport
– Qatar Typhoon
and Hawk
– Kuwait and Oman
Japan
– GCAP
– US foreign
military sales
US
SALES
44%
Employees 34%
UK
SALES
26%
Employees 46%
Europe and other
international
SALES
14%
Employees 8%
Australia
SALES
4%
Employees 6%
Middle East
SALES
12%
Employees 6%
– Hunter Class frigates
– SSN-AUKUS
– Naval support
– Air support (Hawk, F-35)
– C4ISR
– Eurofighter
– MBDA
– Hägglunds/
Bofors (CV90,
BvS10, ARCHER)
– US foreign
military sales
1. We provide customers with world-class
defence products and capabilities across
multiplemarkets.
READ MORE PAGE 18
3. We have a growing global opportunity
pipeline. Our diverse geographic
footprintsupports us in pursuing excellent
opportunities across all sectors as countries
around the world face up to the multi-faceted
threat environment.
READ MORE PAGE 17
6. Sustainability is embedded inour business
–itforms part of our strategic framework
andunderpins our purpose.
READ MORE PAGE 12
4. We foster a high-performance innovative
cultureand consistently invest in R&D to build on
existing world-leading capabilities and generate
new innovative and disruptive technologies.
READ MORE PAGE 20
7. We operate a value-enhancing operating
model,undertaking our core business activities
witha clear, consistent and careful
capitalallocation.
READ MORE PAGE 11
5. We have an intense focus on operational
excellence, with strong, consistent programme
performance. We are focused on creating
valuefor our investors and customers.
READ MORE PAGE 30
2. We undertake multi-decade programmes withlong-term
embedded value. Our contract orderbacklog provides a high
levelof sales visibility, driven bymulti-year programmes.
READ MORE PAGE 17
16 BAE Systems plc  Annual Report 2024
Strategy and performance
1. Backlog for Cyber & Intelligence is generally for one year with an incumbency position following.
2. Projections are based on internal management estimates and reflect management’s current assumptions,
including assumed receipt of future orders over the medium term.
Pipeline/incumbent positionOrder backlog Opportunity
Electronic Systems (ES)
Electronic Combat (including F-35)
ES Defence other
ES Commercial
SMS
Platforms & Services
M109
AMPV
ACV
US Ship Repair
US Ordnance & Weapons
Hägglunds & Bofors
Air
Tempest/GCAP
F-35 build and support
Typhoon production
UK Typhoon support
Kingdom of Saudi Arabia support
MBDA
Maritime
Dreadnought
SSN-AUKUS
Type 26
Australia Hunter Class
Munitions (UK)
Dates reflect position
at 1 January each year
2025
2026
2027
2028
2029
2030
2031
2040
 OUR MULTI-DECADE PROGRAMMES AND GROWING GLOBAL OPPORTUNITY PIPELINE
1,2
17BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
BAE Systems maintains leading positions in major defence
andsecurity markets around the world – in the US, UK, Europe,
MiddleEast and Asia Pacific. We are not only one of the world’s
largest defence and security companies, but are one of the most
geographically diverse, providing us with a competitive advantage.
Our markets
 BAE SYSTEMS’ GLOBAL DEFENCE MARKET POSITION
Supporting our customers’
evolvingneeds
Our strategy, as shown on page 12, is
focused on providing a vital advantage to
our customers around the world through
advanced technologies, innovation and
agility, global industrial capacity and reliable
performance. In particular, we have built
strong positions aligned with our core
defence platforms to support our customers
in our principal markets who have shown a
significant and sustained commitment to
their defence and security and support for
their allies. We have established strong and
enduring relationships in these markets and
are recognised as playing a key role in the
industrial capability of each of these countries.
Our unique combination of
adiversegeographic footprint
andmulti-domain capabilities
We have a strong position in the US through
the Special Security Agreement (SSA) and
are the leading defence contractor in the
UKand in Australia. In Europe, we have a
considerable presence through our Swedish
combat vehicle and artillery business, our
role on Eurofighter, our 37.5% shareholding
in MBDA and US foreign military sales.
Wehave a long-established position in
theMiddle East and, through GCAP, we
aredeepening links with Japan.
In addition, our diverse portfolio of
capabilities in the air, sea, land, cyber
andspace domains provides us with a
comprehensive offering for our customers
around the world, making us one of the
broadest and most geographically diverse
major defence companies.
Our market positions and discriminating
capabilities are aligned with enduring
globaldefence priorities to include our
customers’ requirements to operate in
jointall-domain environments.
Programme diversity and longevity
The Group’s wide diversity of capabilities,
products and programmes means we are
not heavily reliant on a small number of
keyprogrammes or franchises. Additionally,
our order backlog of £77.8bn includes major
programmes that are well positioned to
extend beyond their current funded backlog
for many years and, in some cases, multiple
decades. (Read more on page 17.)
Response to increasing
threatenvironment
Our business continues to evolve and respond
to the geopolitical and technological trends
shaping our customers’ defence and security
priorities now and in the future.
Our demonstrated excellence in complex
engineering, developing cutting-edge
technologies and seeking innovative solutions,
enables us to respond to requirements for
greater agility, global reach and advanced
technology products and services.
Maintaining operational readiness
In response to significantly elevated global
tensions and the acute threat environment,
many countries around the world continue
to announce defence and security budget
increases. The need to re-stock and upgrade
equipment is highly relevant to our
portfolioand presents opportunities
aroundthe world.
Factors likely to impact
futureperformance
Business risks facing the Group are reported
in the principal risks section of this report
(pages 58 to 65). In relation to our market
positions and future performance, the major
risks are in relation to government customer
defence budgets, market stability (political
and geopolitical) and competition. At the
operational level, performance of products
and services and adherence to delivery
schedules could impact our market positions
with customers. Competitor pricing or new
entrants could also have an impact.
Source: Defense News Top 100 for 2024 (based on 2023 numbers). Exchange rate applied to BAE Systems is $1.24/£1.
1. Lockheed Martin
Top ten global defence contractors’ revenue ($bn)
2. Aviation Industry Corporation
of China
3. RTX
4. Northrop Grumman
5. General Dynamics
6. Boeing
7. BAE Systems
8. China State Shipbuilding
Corporation Limited
9. China North Industries Group
Corporation Limited
10. L3Harris Technologies
65
45
41
35
34
33
28
21
17
16
18 BAE Systems plc  Annual Report 2024
Strategy and performance
 VALUE OF THE TOP GLOBAL DEFENCE MARKETS ACCESSIBLE FOR BUSINESS BY THE GROUP
US and Canada Existing programmes Future opportunities
$847bn
defence market
The US continues to be the single
largest defence market in the world.
We are a top ten defence prime
contractor in the US.
In Canada wehave a long
historyofsupporting the
CanadianArmed Forces.
– Electronic warfare
– Precision strike
– C4ISR
– Intelligence & security
– Combat vehicles
– US ship repair
– Munitions
– Space
– CSC
– Precision munitions
– Combat vehicles
– Munitions restocking
– Electrification – ground
andair
– Space, autonomy andcyber
– US foreign military sales
– Maritime support
UK
$74bn
defence market
As the largest defence company in
theUK, we have strong and enduring
relationships with theUKMinistry
ofDefence andourdomestic
supplychains.
– Astute and Dreadnought
submarine build
– SSN-AUKUS submarine
design andfuture build
– Naval ship build and support
– Typhoon capability upgrade
and support and UK
sponsored Typhoon exports
– F-35 (aft fuselage) and
support
– GCAP/Tempest
– Digital Intelligence
– Munitions
– MBDA
– Domestic and
exportpartnerships
– Space, autonomy andcyber
– Munitions restocking
– Embedding environmental
considerations within
platforms and capabilities
– Further UK sponsored
Typhoon exports
– UAS – fixed and rotary wing
Europe
1
$396bn
defence market
In Europe, we are meeting the
increased demand for advanced
military equipment across all domains,
as countries are transitioning away
from older-generation systems
andrecapitalising with modern,
moreadvanced air-, land- and
sea-based systems.
– Eurofighter
– MBDA
– Combat vehicles/artillery –
CV90,BvS10, ARCHER
– US foreign military sales
– Precision munitions
– Eurofighter domestic build
– GCAP
– Combat vehicles/artillery –
CV90, BvS10, ARCHER
– US foreign military sales –
electronic systems
– US foreign military sales –
combat vehicles/artillery/
precision weapons
– MBDA domestic and exports
– Eurofighter domestic
andexports
– Precision munitions
Middle East
2
$160bn
defence market
The Kingdom of Saudi Arabia
continues to be a leading military
power in the Middle East and
oneofthe largest defence
marketsglobally. We also continue
tosupportother customers in Oman,
Kuwaitand Qatar.
– Kingdom of Saudi Arabia
support
– Qatar Typhoon and Hawk
– Kuwait and Oman
– Typhoon
– Support and training
– Upgrades and defence
infrastructure programmes
– Cyber intelligence
– UAS – fixed and rotary wing
Asia Pacific
3
$273bn
defence market
As the largest defence company
inAustralia, we have a strong
presenceacross all domains and
aregrowing as the country’s
defencebudget increases.
In the wider Asia-Pacific region, we
area supplier to a number of armed
forces, both directly and through
jointventures.
– Hunter Class frigate
– GCAP
– US foreign military sales
– Fast jet support
– Ship support
– C4ISR
– Combat vehicles
– SSN-AUKUS – pillar 1 and 2
– GCAP
– US foreign military sales –
Electronic Systems
– US foreign military sales –
combat vehicles/artillery/
precision weapons
– MBDA exports
– Cyber intelligence
– Australian defence exports
Source: Jane’s Defence Budgets (basedon2024 total defence budgets).
1. Includes NATO countries and Ukraine, but excludes UK, US and Canada as shown separately.
2. Includes Egypt, Kuwait, Oman, Qatar, Kingdom of Saudi Arabia and UAE.
3. Includes Australia, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
19BAE Systems plc  Annual Report 2024
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With the global threat environment changing so quickly, our customers
need new technology in their hands as rapidly as possible. Alongside
speed, they also require resilience to enemy countermeasures that can
rapidly cause equipment to become obsolete in the battlespace.
Our investment in technology
With the pace of technological
developments and rapidly evolving threat
landscape, a key area of our focus is
innovating quickly to make a difference in
the immediate and near term. In 2024,
welaunched anumber of products that
have gone from a concept to a physical
demonstrator in record time, many in less
than a year. Our approach to building
products, using a common architecture,
means we can re-use resilient software
andcomponents to accelerate our design,
development and trials. This includes
ourHerne submersible, which re-uses
autonomy modules from previous
autonomous vessels, as well as our Atlas
armoured fighting vehicle, which uses
theopen systems architecture we designed
for use across multiple platforms.
Technology today:
rapidlyturning concepts
into reality
While we deliver technology to
protect customers on the front
line today, we continue to invest
in pioneering R&D to prepare
fortomorrow as threats evolve
and become more complex.
Wefocus this investment on
three core areas:
 FOCUS AREAS
Technology today
Innovating for the future
Efficiency through innovation
20 BAE Systems plc  Annual Report 2024
Strategy and performance
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Connecting and defending
thedigitalbattlespace
Digital connectivity is more important
than ever. Reaction times in the
modern battlespace have gone from
hours to minutes and are moving
towards seconds, as targets are
identified, analysed and addressed.
This drives the need for greater
connectivity between equipment,
not only to share intelligence, but
toallow military planners to decide
on and execute a response.
We are currently building the British
Army’s next-generation deployable
tactical battlefield network, Trinity,
due for delivery from 2026. This will
use our NetVIPR product to largely
automate adding new equipment to
share data, similar toautomatically
adding a phone to a trusted Wi-Fi
network. The software can be
installed on almost any device with
astandard processor and radio
module, allowing products from
multiple suppliers to be added to
anetwork.
To increase digital resilience, we are
supporting the US Space Force Space
Systems Command to build better,
jam-resistant GPS receivers. We
havealready built a demonstration
product, proving the technology,
which we are now miniaturising
andreducing the power requirement
for use in smaller devices. Alongside
our other investments into non-GPS
navigation technologies, this will
help provide more resilient
positioning, navigation and timing
services for military equipment,
which isessential for precision
navigation on the battlefield.
Innovating to address evolving threats
Drone warfare has changed the
waywe think about air defence.
Whilst there remains a clear need
forhigh-end defences against large
air platforms and conventional
threats, these systems are less suited
to countering multiple smaller
UASs,which quickly deplete their
effectiveness. Our newly launched
TRIDON Mk2 moves from expensive
missile systems to a low-cost, rapid
anti-aircraft system to meet the
growing need for air-denial weapons,
crucial for keeping the skies clear.
TRIDON Mk2, which we tested
extensively in 2024 less than six
months after development began,
combines our proven 40mm Bofors
gun with an aerial targeting system,
carried on ahigh-mobility wheeled
platform. Byusing conventional
40mm ammunition, it has the
potential to reduce the cost of
countering small UASs, which are
proving a significant threat in
today’sbattlespace. TRIDON has
amaximum range of up to 12km
anda programmable munition,
Bofors 3P, that can be set to
detonateas an airburst round
closeto its target, providing a
powerful area effect.
The modular TRIDON Mk2
systemisfully adapted for the
modern battlefield, providing high
precision and efficiency by pairing
existing capabilities in an agile,
innovative way.
Autonomy on and under the sea
Small uncrewed boats present a
significant threat, as they are difficult
to stop with conventional defences.
We have integrated our platform
agnostic Nautomate autonomous
system onto our Pacific 24 surface
vessel. We have trialled and will be
demonstrating Nautomate on a
third-party uncrewed fast interceptor
craft, P38, which can be configured
to carry out a wide range of tasks,
including neutralising incoming
small boats using a vessel arrest
system similar to a police ‘stinger’
device for stopping cars. This can
disable the target by tangling their
propulsion systems in rope fibres.
We have also trialled and
demonstrated Nautomate in
ourextra-large autonomous
underwater vehicle (XLAUV),
Herne,which went from concept
toin-the-water testing in less than
11 months and is the UK’s first
autonomous extra large submarine
for military use. We integrated
Nautomate to operate and control
Herne, whilst Canadian company
Cellula Robotics designed and
builtthe physical structure of
thesubmarine.
During sea trials in Canada and the
UK, ourHerne submersible showed
thatit could follow complex
navigation instructions completely
autonomously. It was able to follow
waypoints without human contact,
giving confidence that this 12-metre,
eight-tonne vessel could soon be a
powerful asset for our customers.
Given its potential to patrol
underwater for extended periods
oftime, Herne is intended to be
anideal solution for monitoring
andprotecting critical national
infrastructure, such as undersea
communications lines.
21BAE Systems plc  Annual Report 2024
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Our investment in technology continued
PHASA-35
®
with software-defined radio
Our solar-powered High Altitude
Pseudo Satellite, PHASA-35,
completed another successful
seriesof flight trials in 2024, firmly
establishing the Group as one of
theleaders in the nascent market
forstratospheric aircraft that has
thepotential to deliver monitoring,
surveillance, communications and
security applications. Flying to more
than 66,000 feet and cruising in the
stratosphere before successfully
landing, it was ready to fly again
justthree days later, completing
another flight as part of the trials.
This demonstration of PHASA-35’s
ability to be launched, flown, landed,
potentially reconfigured and then
relaunched again so quickly proved
to be a key discriminator of the novel
proposition itpresents.
The aircraft also carried an
operational payload for the first
time, demonstrating its potential
tobe used for a wide range
offunctions, including ultra-long
endurance intelligence, surveillance
and reconnaissance.
A new version of the aircraft, with
double the solar power generation
and storage capacity, is due to fly
in2025, allowing for much longer
and more complex missions.
Stabilising a quantum state ofmatter
In 2024, we supported a small and
medium sized enterprise, Infleqtion,
to carry out what we believe was a
world first – stabilising a quantum
state of matter called a Bose-Einstein
Condensate (BEC) onboard an
aircraft in flight. The ambition isto
develop this into an unjammable
form of navigation, allowing the user
to fix a position without relying on
external GPS or other signals.
Previously, BECs have only been
demonstrated in laboratories, so
keeping them stable in flight is a
major leap forward. We expect to
see further trials of BECs on maritime
platforms over the next few years,
possibly leading to an operational
solution by 2030.
To help explore other novel
technologies, we support a number
of PhD students in order to apply
their PhD work to operational
scenarios. Also in the quantum field,
we are working with the University
of Birmingham, UK, to explore uses
for quantum clocks, such as sensing,
which could give us significantly
greater detection range and
accuracy. Whilst quantum clocks are
not yet robust enough for sensors
deployed on aircraft or ships, this
research will help us incorporate
them quickly when they reach
thatstage.
Innovating for the future
Some technologies require significant
investment and human ingenuity before
they are ready for use in the real world.
Recognising the potential of such
technologies to create game-changing
military capability, together with our
partners weare investing in the R&D needed
now tolead to that future.
22
BAE Systems plc  Annual Report 2024
Strategy and performance
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Deploying and advancing AIforour customers
We have now demonstrated
aTyphoon AI assistant that can
giveclear answers to complex
maintenance queries. The LLM
ituses is generated from training
manuals based on thousands of
hours of real-world experience
withthe aircraft, which means it
cangive easily understood,
step-by-step instructions along
withreferences to exactly where it
found the information. Thiscould
lead to significantly faster responses
to support enquiries and increased
uptime for Typhoon, as theassistant
is able to make rapid connections
between different systems in a way
that a search engine alone could
notachieve. The AI assistant is
alsoable to give answers in a
number oflanguages, so would
beuseful forinternational teams
working together.
We have also operationalised an
AIsystem to help our customers
fightcyber threats. This again uses
aLLM trained on nearly a decade of
our expert analysis in cyber threats,
which is continually being added
toas our researchers investigate
newactivity. The system is able to
generate actionable insight for users
and recommendations on how to
proceed on a range of topics, from
vulnerabilities in space systems
through to mitigating specific tools
used by criminal groups and hostile
intelligence services.
AI is a powerful enabler of
autonomy. We have continued
working with a team of government
and academic leads in Australia to
enable multiple Uncrewed Ground
Vehicles to operate simultaneously
on a future battlefield, fusing
satellite and on-board sensor data
toimprove navigation. This builds
onprevious work to retrofit the
M113 vehicles owned by the
Australian Army, working with them
to demonstrate its effectiveness in
real-world training during 2024.
Efficiency through innovation
We are committed to delivering innovative
defence technology, cost-effectively and
atpace, as defence equipment becomes
increasingly complex, the threat
environment more dynamic and military
budgets need to work harder. So, we are
investing in developing solutions that save
time and costs, whilst enabling greater
agility for ourselves and our customers,
including digital transformation and
advanced manufacturing techniques.
Artificial Intelligence (AI) is starting to help
us work more efficiently, as we experiment
with Large Language Models (LLM) to
support our maintenance crews. We have
trained the LLM on thousands of pages of
maintenance manuals, meaning it can refer
to every procedure in response to a natural
language question, showing exactly
whereit retrieved the information to give
assurance of a correct answer. We are
taking a similar approach to help our
customers get the most from our insights
into cyber threats, to contribute to
enhanced national security.
More efficient munitions
manufacturing
The global demand for artillery
ammunition has rapidly increased
inthe last two years. NATO has
aclear focus on strengthening
stockpiles, meaning that munitions
manufacturers need to grow
production and ensure we have
arobust supply chain.
In addition to investing in our
UKinfrastructure to substantially
increase manufacturing capacity,
weare developing our new
NextGeneration Adaptable
Ammunition (NGAA), which is
designed toaccelerate production
and improve standardisation through
the use of new manufacturing
technology for both metal and
explosive components.
NGAA is designed to be a modular
artillery product, allowing our
customers to ‘mix and match’ the
various components depending on
their tactical requirement, such as
high explosive, smoke or illumination.
This would allow our customers to
deliver greater operational agility
from a smaller inventory of
munitions, reducing cost and
increasing operational effectiveness.
Border Force support – avoiding downtime at electronic
passportcontrol gates
The UK relies on electronic passport
control gates to process more than
one billion passenger journeys every
year, so it is essential that the system
is robust. We worked with the UK’s
Digital Services at the Border team
tohelp improve the efficiency of
testing and deploying software
updates, so they no longer need
totake the system offline as this
work is carried out.
Previously, software updates could
take months to agree and plan, given
the potential impact of downtime
ontravellers entering the country.
Following our work, updates can
now be fully tested in advance and
carried out almost instantaneously,
with no loss of service or impact
onthose using the systems. To do
this, we created a digital copy of
thehighly complex Border Force
system in which to test updates,
spotany errors and then help
automate deployment.
Electronic gates are just one
component of Digital Services at the
UK Border, so our team is working
collaboratively with our customers
toaddress other challenges. This
builds on our extensive experience in
developing critical digital applications
that contribute to national security,
while also improving efficiency.
23BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
At BAE Systems, we are committed to investing in
ourpeople and having a positive impact on the
communities where we operate.
Our investment in our people and communities
Investing in our people
Our employees are a critical part of everything
we do, from developing the next generation
of defence and security capabilities to having
a positive impact on the communities where
we operate. Thatis why we are committed
toinvesting inthe skills of our current and
future workforce and are working hard to
build inclusive workplaces to attract, develop
andretain the very best talent. We aim
todeliver this through:
• a competitive employee value proposition
that allows everyone to succeed based
onmerit;
• targeted recruitment;
• focused talent management;
• a positive workplace culture,
supportedbylearning and
developmentprogrammes; and
• robust succession planning.
We also encourage our colleagues in
participating countries to benefit from
theCompany’s performance by enrolling
inone of our all-employee share incentive
plans. These employees receive a welcome
information pack when they become eligible
to purchase shares or to receive the annual
free shares award. On an annual basis,
reminders are sent to non-participating
eligible employees that have not yet taken
up the offer to purchase partnership shares
and benefit from the free matching shares.
An annual grant of free shares is awarded
toall eligible employees in participating
countries on an auto-enrolment basis.
Information regarding the plans can be
found on our dedicated intranet sites or via
the benefits hub, which contains information
booklets, FAQs, Plan Rules, tax savings
calculators and user guides.
Strategic workforce planning
Our focus in 2024 included work around
talent acquisition, management and
retention and ensuring we have the ability
toadapt to shifting demographics and
future skills needs.
We invested £230m in education, training
and skills in the UK and further strengthened
our recruiting efforts to meet the growth
weexperienced in our business.
We prioritised recruiting people with
theskills required to support our key
programmes including engineering,
projectmanagement and operations.
Wealso focused on developing digital
andentrepreneurial skills, which are
becoming increasingly important.
During 2025, we will continue to support
business growth by enabling greater
agility,mobility and productivity across
ourworkforce.
Early careers
Investment in our early careers training
across the Group is essential as we continue
to strengthen our talent pipeline and
address skills shortages to ensure we can
deliver on our long-term programmes.
In the UK, we recruited around 2,300
newapprentices and graduates in 2024.
Afurther 162 people completed our Women
in Engineering programme, 107 of whom
were offered an apprenticeship.
In the US, our Learn, Engage, Apply
andProgress (LEAP) intern programme
provided placement opportunities for
nearly500 interns from 175 different
colleges and universities where they were
pursuing 83 different areas of study. Many
ofthe students taking part in the LEAP
programme choose to start their careers
atBAE Systems upon graduation.
Employees
1
by location
C
D
E
A
B
A US 36,200 34%
B UK 49,600 46%
C Kingdom of Saudi Arabia 6,800 6%
D Australia 6,300 6%
E Other 8,500 8%
Employees
1
by sector
C
D
E
F
A
B
A Electronic Systems 22,400 21%
B Platforms & Services 11,600 11%
C Air 27,800 26%
D Maritime 30,100 28%
E Cyber & Intelligence 10,900 10%
F HQ/Other 4,600 4%
In 2024, we increased our workforce
by8% to 107,400 people globally,
including welcoming 5,200
employeesthrough the acquisition
ofBall Aerospace to form our new
SMSbusiness.
TOTAL EMPLOYEES
1
107,400
1. As at 31 December 2024 and including share
ofequity accounted investments.
24 BAE Systems plc  Annual Report 2024
Strategy and performance
WWW.BAESYSTEMS.COM/ARTICLE
Our Catalyst leadership development
programme continued to offer competitively
selected early career employees in the
USwith an opportunity to build business
acumen, assess and develop critical skills and
expand professional networks necessary to
meet the challenges of future leadership roles.
In Australia, our first degree-level
apprenticeship in partnership with the
University of South Australia began in
February, focused on software engineering.
A second cohort is to commence in February
2025. We launched our second degree-level
apprenticeship, supported by the South
Australian Government, in September.
Lifelong learning
In collaboration with our customers, we
areplanning for our future skills needs and
providing our employees with opportunities
for lifelong learning. As part of our plans to
upskill our existing workforce, we opened
our Digital Skills Academy to all employees
in2024 to develop employee digital skills
atall levels from leaders to the shop floor.
We opened a new £12m state-of-the-art
Applied Shipbuilding Academy in Glasgow,
UK, designed to support the training of
apprentices and graduates in our Naval
Shipsbusiness as well as provide learning
and skills development activities for our
wider workforce. This enhances our existing
skills and training academies and facilities
across the UK, some examples of which can
be found on page 26.
Our first cohort of employees studying
forour postgraduate-level sustainability
apprenticeship with Cranfield University
inthe UK completed their apprenticeships.
The second cohort continued their studies.
Over the last three years, 89 current and
future leaders also attended an
entrepreneurial development programme
with the University of Oxford’s Saïd Business
School, designed to help participants
understand how they can deliver greater
efficiency andgrowth.
In Australia, we launched a new internal
scholarship programme to support
paraprofessional and trade colleagues
whohave completed the Diploma of Digital
Technologies with Flinders University and
want to complete a full engineering degree.
In the US, we more than doubled
participation in our Case Based Learning
programme to more than 1,400 employees.
The programme aims to foster a culture
oflifelong learning across our workforce.
Byusing objective analysis of real-world
cases and simulations, the programme
enhances our ability to win bidsand execute
projects successfully, whileidentifying critical
lessons learned from past challenges to
inform and shape future behaviours.
READ MORE PAGE 26
Building digital capability
We are preparing for the future by
investing in the development of our
workforce’s digital skills, with 2024 being
the first full year of operations of our
newGlobal Digital Academy.
The Academy was created toenhance
thedigital capability of our workforce,
supporting growth and innovation
whileequipping our people tothrive
inaconnected, competitive, data-rich
digital world.
The Academy delivers specialist
programmes in areas such as cyber,
dataand software and builds onkey
partnerships with best-in-class providers
and our customers, closely aligned to
majorbusiness projects and programmes.
Working in conjunction with experts,
wehave developed digital skills curricula
for generalists, specialists and leaders.
During its first year, the Academy delivered
a range of digital skills to over 3,000
learners with an estimated benefit of
£1.2m to the business.
As part of wider learning initiatives,
wewillcontinue to expand the delivery
ofour Digital Skills Academy both in
theUKand internationally, supporting
digitalskills development at a generalist,
specialist and leadership level in key
areassuch as cyber, data and AI.
25
BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Our investment in our people and communities continued
Safety, health and wellbeing
Our people’s safety, health and wellbeing
isan enduring priority. During 2024, we
continued to emphasise safety training
toensure our people are safe at work and
weincreased awareness around health
andwellbeing. This included expanding
ourmandatory safety training offering,
developing the BAE Systems Life Saving
Rules and continuing to visibly lead on
health, safety and wellbeing from the
Executive Committee level.
Safety
In 2024, therecordable accident rate
increased by8%from 2023. The primary
root causes for recordable injuries sustained
during 2024were related to handling, lifting
andcarrying (27%) and slips, trips and
falls(22%).
Major injuries increased by 18%. Most of
these injuries were associated with slips,
tripsor falls (45%). In the US, although safety
performance deteriorated with an increase
in recordable accidents and major injuries,
the serious injury and fatality measure was
reduced when compared to 2023.
During the year, we experienced an
explosion at our munitions site in South
Monmouthshire, UK, and a fire at our
submarines facility in Barrow-in-Furness,
UK.While no serious injuries resulted from
these events, both are subject to thorough
investigation inorder to learn relevant
lessons and take appropriate actions to
prevent recurrence.
We focused on the following key areas to
further reinforce the visibility of significant
safety hazards and enhance our safety
culture by:
• continued emphasis on preventative
safety management with the aim of
identifying, mitigating and learning
fromhazards and/or actual and potential
incidents that can result in a serious injury
or fatality;
• development of our ‘Life Saving Rules’ or
equivalent Life Saving Commitments for
deployment across the Group, ensuring
anintentional focus on high-risk activities;
• visible leadership engagement led by
ourExecutive Committee team; and
• continued deployment of safety training
for all employees.
During 2025, in light of the increase in our
recordable and major injury rates, we will
seek to strengthen our safety management
programmes by continuing visible leadership
of our programme, engaging employees
onour Group-wide ‘Life Saving Rules’,
developing new employee training modules
and improving safety management reporting
and data-informed decision-making.
In addition to the launch of our Global Digital Academy, we have a number of Academies
across the UK which provide education and training opportunities to our workforce.
 SKILLS AND TRAINING ACADEMIES
Submarine Academy
forSkills & Knowledge,
Barrow-in-Furness
– 8,300 square metres
– 10 workshops
– 30 classrooms
– Replica submarine unit
for experiential learning
Applied Shipbuilding
Academy, Scotstoun
– 5,500 square metres
(integrated learning
huband trade hall)
– 39 classrooms
– Trade and technical
training spaces
throughout trade hall
Aircraft Maintenance
Academy, North
Lincolnshire
– 5,500 square metres
– 5 workshops, plus
aircraft hangar
– 11 classrooms
Academy for Skills and
Knowledge, Samlesbury
– 7,400 square metres
– 42 learning spaces:
5ICTrooms, 2 electronics
labs, 24 training rooms,
10practical workshops,
1 VR /AR cave
– 1 hybrid learning studio
– Equipment and
platforms replicating
aerospace production
and sustainment
environments
26 BAE Systems plc  Annual Report 2024
Strategy and performance
During 2024, we remained committed
toharnessing the talent of our employees
withdisabilities and those who develop
disabilities during employment by providing
an accessible physical and digital workplace,
training andreasonable adjustments
programme asneeded; and to giving open,
full and fairconsideration to applications for
employment from people with disabilities,
health conditions or impairments who
meetthe requirements for roles. We have
strengthened awareness of managing
andsupporting neurodiverse and disabled
employees through training for line
managers and employees.
We were recognised for that work in 2024:
we received Great Place to Work certification
in the Kingdom of Saudi Arabia; in the UK,
we were recognised as Private Sector
Menopause Friendly Employer of the year
and achieved a gold award in Employers
Network for Equality & Inclusion’s Talent
Inclusion and Diversity Evaluation initiative;
and, in the US, a number of our scientists
andengineers were recognised for their
achievements at national conferences and
other external organisation events.
An inclusive workplace
We are making steady progress towards
ouraim to foster a workplace culture
whereemployees feel valued and can
seethemselves advancing in their careers
within our organisation by providing
opportunities, amplifying voices and
delivering programmes that inform, elevate
and inspire our workforce. As part of this,
wecontinue to grow our membership of
employee resource groups, which provide
supportive environments for members to
learn, grow and feel they belong.
We continue to focus on retaining and
developing our talent across all grades,
offering mentoring programmes and
promoting recruitment campaigns and
events, for example early careers and
experienced professionals. We continue
todrive progress across these areas to
helpbuild and advance skills throughout
ourworkforce. We also actively support
industrycommitments and initiatives
whereweoperate.
Health and wellbeing
In 2024, we continued to strengthen
ourfocus on the health and wellbeing
ofourpeople. We proactively engaged
employees in mental health awareness
across our business, including training,
encouraging healthy individual and team
practices, refreshing our peer-to-peer mental
health advocacy programme, expanding our
capability to deliver mental health support
toemployees and leveraging the work of
ouremployee resource groups.
Recordable injury rate
(per 100,000 employees)
1
BONUS
KPI
2024 459
4242023
Major injury rate
(per 100,000 employees)
1
BONUS
2024 47
402023
BONUS
The award of the executive directors’ bonuses is
dependent upon achievement of improvements
inboth safety and diversity (see page 113).
1. BAE Systems Internal Audit has reviewed the systems, processes and controls in place to collate, validate andreport this data. Based on the procedures and the evidence
obtained, nothing has come to its attention that indicates the disclosures have not been properly prepared in accordance with such systems, processes andcontrols.
2. Senior managers has the meaning given to that term by section 414C(9) of the Companies Act 2006. Senior managers are defined as employees (excluding executive
directors) who have responsibility for planning, directing or controlling the activities of the Group orastrategically significant part of the Group and/or who
aredirectors of subsidiary companies. This includes the Executive Committee (excluding executive directors) and their direct reports.
3. As at 31 December 2024, excluding share of equity accounted investments androundedto the nearest thousand employees. BAE Systems Internal Audit has reviewed
the systems, processes and controls in place to collate, validate andreport this data. Based on the procedures and the evidence obtained, nothing has come to its
attention that indicates the disclosures have not been properly prepared in accordance with such systems, processes and controls.
Gender diversity
Board: 12
Total employees: 100,000
3
Male Female
Senior managers: 358
2
7 (58%) 5 (42%)
256 (72%)
102 (28%)
76,000 (76%)
24,000 (24%)
In 2024, we met the UK FCA Board diversity targets, including a female Chair and Senior Independent Director, and a 40% gender
mix with one board member from anethnic minority background.
FOR OUR UK GENDER AND ETHNICITY PAY GAP REPORT VISIT OUR WEBSITE WWW.BAESYSTEMS.COM/SUSTAINABILITY
27BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Our investment in our people and communities continued
Supporting our communities
We are committed to making a difference
inour local communities and focus our
efforts on areas that are aligned to our
business andvalues, including support
forour armed forces and the development
of Science, Technology, Engineering and
Mathematics (STEM) skills through our
education outreach programmes.
Our community investment activities aim
tomake a difference, through donations,
fundraising and volunteering, working
together with charitable partners to
understand how our support can help
todeliver the most value and generate
alasting impact.
Partnerships are at the heart of our
community investment programmes.
Wecontinue to strengthen our long-term
relationships with the charities we work
with, supporting them tohelp mitigate the
rising cost of delivering charitable services.
Highlights included partnering with
TheRoyal British Legion Industries on
itsGreat Tommy Sleep Out, which raised
more than £1.2m tohelp veterans who
areexperiencing homelessness, and
ourpartnerships with First Nations charities,
Stars Foundation and Clontarf Foundation
inAustralia, which helped to keep
745students in education and connected
totheir communities.
£12.7m
1
(2023 £11.3m)
Contributed to local, national
and international organisations
throughout the year
We significantly strengthened our
relationships with our community in the
Kingdom of Saudi Arabia through new
partnerships, including supporting the
SaudiFederation for Visual Impairments
andRiyadh Municipality.
We also enhanced our volunteer programme
in the US by expanding opportunities and
participation options, enabling employees to
more easily engage inmeaningful volunteer
work aligned to their personal interests.
We plan to build on our volunteering
programme in 2025, increasing the range of
opportunities to support local communities
and launch a new volunteering tool to make
it easier for more of our employees across
the Group to get involved.
40,959 hours
(2023 23,705 hours)
Volunteered by our highly skilled and
passionate employees working with
charities and not-for-profit organisations
Education outreach
In addition to our skills development
activities, we continued our global STEM
educational outreach programmes, which
aim to inspire young people to choose a
career in STEM in support of our future
talent pipeline.
We operate our Beacon STEM outreach
programme in partnership with immersive
technology company, Lumination, in
Australia. Together, we provided more
than1,800 students, aged 7 to 12, from low
socio-economic areas access to emerging
technology via a ten-week in-school or
four-day school holiday programme.
Wesecured funding from the Australian
Government to significantly expand the
programme over the next three years and
we also trialled it in the UK. Alongside this
initiative, more than 350 high school
students participated in engineering or
trades taster work experience programmes
at our sites across Australia.
In the UK, during 2024, 725 of our STEM
Ambassadors actively supported our
education outreach activity through the
year. We launched the 19th annual season of
our schools roadshow, jointly with the Royal
Navy and Royal Air Force, which delivered an
interactive ‘electricity themed’ experience
for students aged 9 to 12 years which, during
2024, reached more than 135,000 students
across 535 schools.
In 2024, we delivered more than 1,000
face-to-face or virtual work experience
placements. Around 25 T-Level students
started their industry placement with us
inOctober 2024, which concluded in
February 2025.
We remain a founding member of
Movement to Work, a charitable
organisation that aims to tackle youth
unemployment and drive social change.
Through the charity, we offered six cohorts
of young people an opportunity to
undertake work placements in our business
with around 80 participants completing
theprogramme, almost half of whom went
on to find work in our Company. Since we
started working with Movement to Work
in2014, around 950 people have completed
our work experience programme.
We have also entered into a strategic
partnership with the University of Cumbria
to support the establishment of its new
campus in Barrow-in-Furness, UK. Expected
to be complete in 2025, the campus should
bea catalyst for growing higher education
participation in the local area. We have
developed a teaching and learning
agreement with the university, giving
students on mechanical engineering and
computer science courses an opportunity
toapply for a BAE Systems-sponsored
scholarship, providing a bursary, paid
workplacement and an interview.
In the US, we continued our decades of
support for FIRST® (For Inspiration and
Recognition of Science and Technology),
both locally and nationally as the presenting
sponsor of the 2024 FIRST Robotics National
Championship. Over 50,000 students,
coaches and supporters from 58 countries
took part. Our employees mentored
students and provided technical guidance to
help students gain technical STEM-related
skills as well as confidence, curiosity, courage
and compassion that are needed to succeed
in the workforce. More than 240 FIRST teams
received funding from BAE Systems during
the season and 37 of them advanced to
thechampionship.
We intend to continue our education
outreach programmes in our key markets in
2025, strengthening and expanding existing
partnerships, whilst also identifying new
collaborative opportunities to inspire young
people to consider and pursue acareer
inSTEM.
BAE Systems, Inc. STEM Center
During the year, the newly renovated
wingat Nashua Community College was
named the BAE Systems, Inc. STEM Center
in recognition of our collaboration with
thecollege across programmes like
Electronic Engineering Technology,
Computer Networking, Computer Science,
Physics classes, and the BAE Systems, Inc.
workforce training programmes such
asthe Microelectronics Boot Camp.
The centre includes 14 labs, classrooms and
conference rooms, and features a student
collaboration space and study lounges.
1. Deloitte has provided independent limited assurance
in accordance with the International Standard for
Assurance Engagements 3000 (ISAE 3000) and
Assurance Engagements on Greenhouse Gas
Statements (ISAE 3410) issued by the International
Auditing and Assurance Standards Board (IAASB).
Deloitte’s full unqualified assurance opinion, which
includes details of the selected metrics assured,
canbe found at baesystems.com/annual-report.
28 BAE Systems plc  Annual Report 2024
Strategy and performance
WWW.BAESYSTEMS.COM/ARTICLE
Support for the armed forces
Given the nature of the Group’s activities,
supporting the armed forces community
ispart of who we are. Our activities focus
ontwo areas: working with charitable
organisations to support veterans, serving
personnel, their families and heritage
institutions through our community
investment activities; and being a preferred
employer for service leavers and reservists.
We recognise the strength and breadth of
the talent in our armed forces and we want
to be at the top oftheir list if the time comes
for them to lookfor employment in the
private sector.
As part of our long-standing commitment to
the UK’s Armed Forces Covenant, we worked
with our community partners and heritage
institutions in 2024 to support important
armed forces anniversaries, such as the 80th
anniversary of the D-Day landings. We also
developed a global veterans’ charter to
helpshare best practice throughout our
organisation about supporting colleagues
who are armed forces veterans. We piloted
aCorporate Fellowship programme for
transitioning service members and a veteran-
to-veteran internal mentoring programme.
Our partnership with Legacy Australia also
enabled the charity to provide 126 grants
toveteran families through its education
grant programme.
Looking ahead, we aim to increase
ourengagement with our armed forces
communities and leverage new and existing
partnerships to provide even greater impact.
We intend to continue to build on the
support weoffer to veterans as we aim to
bethe preferred employer for these talented
individuals looking for opportunities in the
private sector when making the transition
from the military back to civilian life.
Remembering D-Day 80 years on
On 6 June 1944, Britain and her allies
launched D-Day, or Operation Overlord,
afull-scale naval operation to recapture
France from Nazi oppression. Operation
Overlord landed 150,000 troops on
fivebeaches in Normandy, France, and
signified the beginning of the end of
WorldWar Two.
At BAE Systems, the 80th anniversary of
D-Day in 2024 provided a moment for
ustoreflect on these pivotal events and
demonstrate our continued support of
pastand present armed forces members.
We are proud to be principal sponsor of
TheWinston Churchill Centre for Education
and Learning located at the British
Normandy Memorial in France. The centre
offers a space to commemorate the D-Day
landings and the Battle of Normandy,
helping future generations to learn about
the events of 1944 and the men and
women who gave so much to protect our
freedoms. Our sponsorship contributed
£600,000 to the construction of the centre.
Other activities to mark D-Day 80 included
inviting D-Day veterans to our facilities to
see some of the military equipment we are
delivering to today’s armed forces,
providing transport for them to the events
in Normandy, our employees volunteering
on the installation of the visually impactful
Standing with Giants project and our
apprentices designing andbuilding
Portsmouth’s D-Day beacon.
We also shared stories from our archives,
revisiting our heritage and the role our
legacy companies played in D-Day, including
AVRoe (Avro) who developed the Lancaster
bomber and Vickers-Armstrongs Limited
who built the engine for HMS Orion, the
ship that is thought to have firedthe first
shell on D-Day.
29
BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Our financial review
Full-year performance summary
Order intake for the year was £33.7bn. Our
order backlog expanded by 11% to a record
£77.8bn, which included order backlog of
£3.0bn related to SMS.
On a constant currency basis, we delivered
sales growth of 14%, in line with our
guidance, with all sectors delivering growth
on the prior year. Our growth in sales
benefited from M&A activities in the year,
predominantly in relation to the acquisition
of Ball Aerospace in February. Excluding
M&A activities, organic growth was 9%
onaconstant currency basis.
Our profitability, in the form of underlying
EBIT, rose by more than 14% on a constant
currency basis, to just over £3.0bn. Our return
on sales was 10.6%, up by 5bps on a constant
currency basis, driven by strong operational
performance and the benefit of recent
acquisitions which have more than offset
themix effect from continued high growth
in the Maritime sector.
Underlying EPS grew by 10% as the
increasein underlying EBIT was partially
offset by additional finance costs incurred
inthe year, primarily in relation to the
additional debt raised to finance the
BallAerospace acquisition.
We delivered £2,505m of free cash flow
asaresult of significant customer advances
received towards the end of the year
together with strong operational cash
conversion. Capex spend in the year was
greater than £1.0bn as we continued to
invest in our systems and facilities and
buildgreater capacity for the future.
We returned £1.5bn to shareholders
throughdividends and the share buyback
programmes. The Board has recommended
a final dividend of 20.6p, taking the total
dividend for 2024 to 33.0p – an increase
of10% on last year, marking our 21st year
inarow of increased dividends.
2025 Group guidance
1
Sales for the Group are expected to increase
between 7% to 9%.
Underlying EBIT is expected to improve by
8% to 10%.
We expect underlying EPS to increase by
8%to10%.
Free cash flow in 2025 is expected to be
greater than £1.1bn as cash advances
received will start to unwind.
Group guidance can be found on page 36.
1. While the Group is subject to geopolitical and otheruncertainties, the following guidance is provided on current expected operational performance. Our guidance uses
the same exchangerate we averaged in 2024 of $1.28:£1.
2024 full-year performance againstguidance
Sales Underlying EPS
Free cash flowUnderlying EBIT
2024 guidance range based on guidance provided at the Half-yearly results in August 2024, at an exchange rate of $1.24:£1.
Actual 2024 financial results
We have once again delivered a strong
financialperformance, with top-line growth
andhigh cash conversion. Our order backlog
hasexpanded to a record £77.8bn, positioning
uswell for the future.
Brad Greve
Chief Financial Officer
12%
14%
12% 14%
14.4%
7% 9%
10.1%
>£1.5bn
£2.5bn
30 BAE Systems plc  Annual Report 2024
Strategy and performance
 FINANCIAL HIGHLIGHTS
Financial performance measures as defined by the Group
1
Financial performance measures as derived from IFRS
BONUS
75% of the UK executive directors’ annual bonuses are based ontheachievement of financial KPIs (see page 14).
KPI
References to KPIs throughout the Annual Report.
1. The definition and purpose of all performance measures defined by the Group are provided in the Alternative performance measures section on page 220.
2. Growth rates for Sales, Underlying EBIT and Underlying EPS are on a constant currency basis (i.e. current year compared with prior year translated at current year
exchange rates). The comparatives have not been restated. All other growth rates and year-on-year movements are ona reported currency basis.
Sales
KPI
£28,335m
14% growth
2
20232022
2024
23,256
25,284
28,335
Underlying EBIT
KPI
£3,015m
14% growth
2
20232022
2024
2,479
2,682
3,015
Underlying EPS
BONUS
KPI
68.5p
10% growth
2
20232022
2024
55.5
63.2
68.5
Free cash flow
KPI
£2,505m
£88m lower
20232022
2024
1,950
2,593
2,505
Order intake
BONUS
KPI
£33.7bn
£4.0bn decrease
20232022
2024
37.1
37.7
33.7
Order backlog
£7 7.8bn
£8.0bn increase
20232022
2024
58.9
69.8
77.8
Revenue
£26,312m
14% growth
20232022
2024
21,258
23,078
26,312
Operating profit
£2,685m
4% growth
20232022
2024
2,384
2,573
2,685
Basic EPS
64.9p
6% growth
20232022
2024
51.1
61.3
64.9
Net cash flow from operating activities
£3,925m
£165m higher
20232022
2024
2,839
3,760
3,925
Order book
£60.4bn
£2.4bn increase
20232022
2024
48.9
58.0
60.4
Dividend per share
33.0p
10% growth
20232022
2024
27.0
30.0
33.0
31BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Our financial review continued
As defined by the Group
Sales for the year were £28.3bn
(2023£25.3bn) representing growth,
onaconstant currency basis
2
, of 14%
(20239%). All sectors delivered growth
inthe year as detailed below.
Electronic Systems recorded sales of
£7.2bn(2023 £5.5bn), equating to growth
of35% (2023 9%) on a constant currency
basis and including the benefit of SMS.
Excluding SMS, our Electronic Systems
sectordelivered organic growth of 9%
driven by the precision strike & sensing
andcommercial aviation businesses.
Our Platforms & Services sector posted sales
of £4.4bn (2023 £3.9bn), with growth of 15%
(2023 8%) on a constant currency basis. The
US combat vehicles business grew following
demand for AMPV and Bradley vehicles,
while Hägglunds and Bofors both grew with
European demand for CV90 and Archer.
The Air sector recorded sales of £8.5bn
(2023£8.1bn), representing growth of
7%(2023 4%) on a constant currency basis.
Activities in MBDA increased combined
withour acquisitions in FalconWorks®, which
have expanded our capabilities in UAS.
Maritime recorded sales of £6.2bn
(2023£5.5bn), with growth of 12%
(202322%) on a constant currency basis.
Theramp-up of the Hunter Class frigate
programme in Australia contributed
significantly to the growth, with our
submarines business in the UK also making
amaterial contribution from design work
onSSN-AUKUS in the year. Demand for
munitions also increased on 2023.
Sales in the Cyber & Intelligence sector grew
to £2.4bn (2023 £2.3bn), an increase of 6%
(2023 6%) on a constant currency basis.
Underlying EBIT was up 14% (2023 9%),
on a constant currency basis, to £3,015m
(2023 £2,682m).
Our Electronic Systems sector grew
underlying EBIT to £1,071m (2023 £878m),
an increase of 25% (2023 5%), on a constant
currency basis, and including the benefit of
SMS. Excluding SMS, our Electronic Systems
sector had organic growth of 6% following
the increase in sales. Return on sales was
14.9% (2023 16.1%) due to absorption of
lower pension recoveries and incorporation
of SMS.
Platforms & Services reported underlying
EBIT of £448m (2023 £354m), an increase
of29% (2023 10%) on a constant currency
basis, with return onsales increasing to
10.2% (2023 9.0%). This was driven by
full-rate production volumes on AMPV,
combined with growth in our Hägglunds
and Bofors businesses.
Our Air sector reported underlying EBIT
of£1,007m (2023 £949m), anincrease
of7%(2023 12%) on a constant currency
basis, maintaining astrong return on
salesof11.8% (2023 11.8%). This was
drivenbyhigher sales volumes.
Maritime reported underlying EBIT of
£474m(2023 £425m), growth of 12%
(202320%) on a constant currency basis
inline with sales, delivering a return on
salesof 7.7%(2023 7.7%).
Finally, Cyber & Intelligence reported
underlying EBIT of £199m (2023 £199m),
with a return on sales of 8.3% (2023 8.6%).
Adjusting items totalled a net gain of
£23m(2023 £40m). During the year, the
Group realised a net profit of £94m on the
disposal of a number of businesses, the most
significant being the partial disposal of our
partial shareholding in Air Astana which
generated a profit of £75m. In addition, we
recognised a settlement gain of £13m on a
US pension buyout. This was largely offset by
£72m of acquisition and integration-related
costs, primarily in relation to Ball Aerospace,
and £12m of other costs related to historic
business transactions.
Underlying net finance costs were £396m
(2023 £211m), an increase of £185m. Of this,
net costs of £455m (2023 £231m) related to
the Group and net income of £59m (2023
£20m) related to the Group’s share of equity
accounted investments.
As derived from IFRS
Revenue was £26.3bn (2023 £23.1bn)
withgrowth during the year of 14%
(20239%), on a reported currency basis,
reflective of the same drivers behind the
increase in sales for the year excluding the
impact of MBDA in the Air sector and other
equity accounted investments.
Operating profit increased 4% (2023 8%),
to £2,685m (2023 £2,573m), on a reported
currency basis. On an operating sector basis
this reflected the same drivers as underlying
EBIT,however, operating profit also reflected
significant additional costs from the
amortisation of acquired intangibles and
impairment of equity accounted investments
and intangibles, which increased by £228m
to £344m in 2024. Of the £344m incurred
inthe year, £213m related to the assets
acquired with Ball Aerospace.
Net finance costs were £353m (2023
£247m), an increase of £106m reflective
ofthe additional cost of debt raised during
the year. Interest on loans and financial
instruments totalled £482m compared
to£286m in 2023.
1. On a Group basis, £85m (2023 £83m) of profit for the year is attributable to non-controlling interests, with £2,065m (2023 £1,916m) attributable to equity shareholders.
On an IFRS basis, £85m (2023 £83m) of profit for the year is attributable to non-controlling interests, with £1,956m (2023 £1,857m) attributable to equity shareholders.
2. Current year compared with prior year translated atcurrent year exchange rates. The comparatives have not been restated.
Group income statement
Underlying – as defined
by the Group
Statutory – as derived
from IFRS
2024
£m
2023
£m
2024
£m
2023
£m
Sales/Revenue
KPI
28,335 25,284 26,312 23,078
Underlying EBIT/Operating profit
KPI
3,015 2,682 2,685 2,573
Finance income 117 131 135 172
Finance costs (513) (342) (488) (419)
Net finance costs (396) (211) (353) (247)
Profit before tax 2,619 2,471 2,332 2,326
Tax expense (469) (472) (291) (386)
Profit for the year
1
2,150 1,999 2,041 1,940
Return on Sales/Revenue 10.6% 10.6% 10.2% 11.1%
Reconciliation of underlying EBIT to operating profit
2024
£m
2023
£m
Underlying EBIT
KPI
3,015 2,682
Adjusting items 23 40
Amortisation of programme, customer-related and other intangible assets, and impairment
ofequityaccountedinvestments and intangible assets (344) (116)
Net finance income and tax of equity accounted investments (9) (33)
Operating profit 2,685 2,573
32
BAE Systems plc  Annual Report 2024
Strategy and performance
Earnings per share (EPS)
 MOVEMENT IN UNDERLYING EPS (PENCE)
63.2
(1.0)
0.6
(1.4)
1.0
0.4
5.7
68.5
2023
75
70
65
60
55
50
FX Acquisitions
and disposals
1
Underlying
interest
Underlying
EBIT
Tax rate Share
buyback
2024
As defined by the Group
Underlying EPS increased to 68.5p
(202363.2p), 10% on a constant currency
basis. This is largely driven by the improved
underlying profit for the year, with detailed
movements set out in the table below.
As derived from IFRS
Basic EPS increased 6% to 64.9p
(202361.3p) with the gain in underlying
profit being offset by amortisation on
theintangibles acquired within the year,
predominantly within our SMS business.
As defined by the Group 2024 2023
Underlying earnings for the year attributable toequityshareholders £2,065m £1,916m
Underlying EPS
KPI
68.5p 63.2p
As derived from IFRS
Profit for the year attributable to equity shareholders £1,956m £1,857m
Basic EPS 64.9p 61.3p
As defined by the Group
Order intake was £33.7bn which,
combined with £3.0bn of order backlog
inSMS, pushed order backlog to a record
of£77.8bn.
Order intake remained high across all
sectors. Details of awards in the year
arecovered inthe segmental reviews
onpages 38 to 47 with significant orders
inthe year including:
Order intake
KPI
22%
2024
£33.7bn
24%
26%
7%
21%
(2023 £37.7bn)
Order backlog
18%
2024
£77.8bn
34%
30%
2%
16%
(2023 £69.8bn)
Order book
22%
2024
£60.4bn
26%
36%
2%
14%
(2023 £58.0bn)
– In Maritime, a contract worth £4.6bn
fordelivery of the first threeHunter Class
frigates (Batch 1) in Australia, following
which, we entered theconstruction phase
and officially cutsteel on the first ship at a
ceremony atthe Osborne Naval Shipyard
in Adelaide, South Australia.
– Our Hägglunds business, within the
Platforms & Services sector, received
ordersworth a total of approximately
$2.5bn (£2.0bn) for CV9035 MkIIIC
vehicles for Sweden and Denmark.
– Our Air sector confirmed orders totalling
£1.1bnfor our work share on additional
Typhoon aircraft, including 25 forthe
Spanish Air Force and up to 24forthe
Italian Air Force.
Orders
 AS DEFINED BY THE GROUP  AS DERIVED FROM IFRS
Electronic Systems
Platforms & Services
Air
Maritime
Cyber & Intelligence
1. Acquisitions and disposals figure reflects the underlying EBIT for acquired businesses since date of acquisition offset by lower Air Astana earnings to reflect the
partial disposal and interest costs on the debt raised in the year to finance the SMS acquisition.
33BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Our financial review continued
Net debt (excluding lease liabilities)
Components of net debt
2024
£m
2023
£m
Cash and cash equivalents 3,378 4,067
Debt-related derivative financial instruments (net) 89 22
Loans – non-current (7,713) (4,432)
Loans – current (699) (679)
Net debt (excluding lease liabilities)
KPI
(4,945) (1,022)
Cash and cash equivalents of £3,378m
(2023 £4,067m) are held primarily for
management of working capital as well as
the repayment of debt securities, pension
funding when required and committed
shareholder returns. During the year, the
Group cash-settled $1.5bn (£1.2bn) of the
$5.5bn (£4.4bn) consideration for Ball
Aerospace, with the balance funded from
debt raised during the year.
The Group’s net debt (excluding
leaseliabilities) at 31 December 2024 was
£4,945m (2023 £1,022m), a net increase of
£3,923m (2023 decrease of £1,001m) from
the position at the start of the year. This was
primarily as a result of M&A activities in
theyear, including the $5.5bn (£4.4bn)
acquisition of Ball Aerospace which was
partially funded by debt finance raised
during the year.
For details of maturity of the Group
borrowings see note 21 on page 181.
Other movements comprised foreign
exchange on the Group’s US dollar-
denominated cash and borrowings, offset
bytheir associated derivatives, and dividends
paid to non-controlling interests.
 MOVEMENT IN NET DEBT (EXCLUDING LEASE LIABILITIES) (£m)
(1,022)
3,093
(588)
(1,492)
(4,936)
(4,945)
31 December
2023
2,500
0
(2,500)
(5,000)
Operating business
cash �ow
Interest
and tax
Shareholder
returns
Business transactions
and other
31 December
2024
Free cash �ow
£2,505m
Balance sheet
2024
£m
2023
£m
Goodwill 13,297 11,386
Other intangible assets 2,965 713
Property, plant and equipment, right-of-use assets and investment property 6,636 5,003
Equity accounted investments and other investments 906 916
Working capital (6,386) (5,468)
Lease liabilities net of finance lease receivables (1,817) (1,396)
Group’s share of IAS 19 post-employment benefits surplus 768 229
Net tax assets and liabilities 422 474
Net other financial assets and liabilities (69) (112)
Net debt (excluding lease liabilities)
KPI
(4,945) (1,022)
Net assets 11,777 10,723
Goodwill of £13.3bn (2023 £11.4bn) was
anincrease of £1.9bn on the prior year,
driven by M&A activities including the
acquisition of Ball Aerospace.
Other intangible assets of £3.0bn (2023
£0.7bn) was an increase of £2.3bn on the
prior year, also driven by the acquisition of
Ball Aerospace and other M&A activities.
Property, plant and equipment, right-
of-use assets and investment property
was £6.6bn (2023 £5.0bn), an increase of
£1.6bn. Property, plant and equipment
increased by a net £1.2bn, reflecting
M&Aactivities and capex spend across
thebusiness, offset by depreciation.
Equity accounted investments and other
investments was £906m (2023 £916m).
Thepartial disposal of the Group’s partial
shareholding in Air Astana and disposal of
its49% interest in FNSS were offset by a net
increase in the Group’s share of profits of its
remaining equity accounted investments.
Working capital saw a £0.9bn decrease,
inaggregate, mainly reflecting the
movement oncustomer advances and the
impact of M&A activities.
Lease liabilities, net of finance lease
receivables, was £1.8bn (2023 £1.4bn),
withthe increase being driven by lease
renewals in the year, mainly in the Air sector.
The Group’s share of the net IAS 19
post-employment benefits surplus
was£0.8bn (2023 £0.2bn), net of a 25%
(2023 35%) withholding tax of £0.4bn
(2023£0.4bn). The increase inthe net
surplusof £0.5bn largely reflects changes in
the underlying assumptions. Details of the
Group’s post-employment benefit schemes
are provided in note 24 tothe Consolidated
financial statements onpage 183.
34
BAE Systems plc  Annual Report 2024
Strategy and performance
As defined by the Group
Free cash flow of £2,505m (2023 £2,593m)
was above guidance, with higher than
anticipated customer advances towards
theend of theyear together with good
operational cash conversion.
Operating business cash flow of
£3,093m(2023 £3,218m) was a decrease
of£125m (2023 increase of £666m) driven
bythe increase in capex spend in the year,
with over £1.0bn (2023 £0.8bn) being
invested across our systems and facilities.
As derived from IFRS
Net cash flow from operating activities
was £3,925m (2023 £3,760m), an increase
of£165m (2023 £921m) primarily resulting
from increased profitability of the Group in
the year.
Net cash flow from investing activities
was an outflow of £5,269m (2023 £541m).
M&A investment in the year was significant
with a number of acquisitions, including
BallAerospace, accounting for a net cash
outflow of £4.8bn. This was offset by cash
proceeds of £194m from non-core business
disposals in the year, including the partial
disposal of the Group’s partial shareholding
in Air Astana, combined with interest and
dividends from our equity accounted
investments. There was no significant M&A
activity in thecomparative year. Capex also
remained high, with over £1.0bn of cash
invested in the year.
Net cash flow from financing activities
was an inflow of £695m (2023 outflow
of£2,188m), anincrease of £2,883m
(2023decrease of £145m). Cashreturns to
shareholders, through dividend and share
repurchases, increased £74m to £1,492m.
Although dividends increased, the value
ofshare repurchases was lower. Dividends
paid represent the 2023 final dividend and
the 2024 interim dividend. During 2024,
werepurchased 43mshares under the
2022and2023 share buyback programmes
(202359m shares under the 2022share
buyback programme). This year also saw
anet cash inflow from debt financing in
theyear of £3,139m primarily to fund the
BallAerospace acquisition (2023 £162m
froma private placement).
Cash flow
As defined by the Group
2024
£m
2023
£m
Free cash flow
KPI
2,505 2,593
Operating business cash flow 3,093 3,218
As derived from IFRS
Net cash flow from operating activities 3,925 3,760
Net cash flow from investing activities (5,269) (541)
Net cash flow from financing activities 695 (2,188)
Net (decrease)/increase in cash and cash equivalents (649) 1,031
Cash and cash equivalents at 1 January 4,067 3,107
Effect of foreign exchange rate changes on cash and cash equivalents (40) (71)
Cash and cash equivalents at 31 December 3,378 4,067
Exchange rates
Average 2024 2023
£/$ 1.278 1.244
£/€ 1.181 1.150
£/A$ 1.938 1.874
Year end
£/$ 1.253 1.275
£/€ 1.210 1.154
£/A$ 2.023 1.868
35
BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
After a strong financial year for 2024, we look forward to continued top-line growth with increased return on sales and good free cash
delivery againstour rolling targets. Guidance is provided on the basis of an exchange rate of $1.28:£1, which is in line withthe actual 2024
exchangerate.
Guidance for 2025
1
Segmental guidance
The following table provides guidance by segment, aligned to the Group guidance.
Year ended 31 December 2025 Expected sales Expected return on sales
2
Electronic Systems
Up 8% to 10% c.15%
Platforms & Services
Up 7% to 9% c.11%
Air
Up 6% to 8% 11% to 12%
Maritime
Up 7% to 9% c.8%
Cyber & Intelligence
Up 8% to 10% 8% to 9%
In 2025, the HQ reporting segment is expected to be an expense of c.£190m (2024 £184m).
Three-year cumulative free cash flow guidance
Actual Forecast
2023 2024 2025 2026 2027
2023–2025 in excess of £6.0bn
(previously in excess of £5.0bn)
£2.6bn £2.5bn >£1.1bn
2024–2026 in excess of £5.5bn
(previously in excess of £5.0bn)
£2.5bn >£1.1bn
2025–2027 in excess of £5.5bn
>£1.1bn
1. While the Group is subject to geopolitical and other uncertainties, the following guidance isprovided on current expected operational performance. The guidance
isbasedon the measures used to monitor the underlying financial performance of the Group. See the Alternative performance measures section on page 220.
2. Underlying EBIT as percentage of sales.
Sensitivity to foreign exchange rates: the Group operates in a number of currencies, the most significant of which is the US dollar. As a guide,
a5 cent movement inthe £/$exchange rate will impact sales by c.£525m, Underlying EBIT by c.£75m and Underlying EPS by c.1.4p.
Free cash flow target for 2025
>£1.1bn
2024 £2,505m
Underlying EBIT
expected to increase in the range of
8% to 10%
2024 £3,015m
Underlying EPS
expected to increase in the range of
8% to 10%
2024 68.5p
Sales
expected to increase in the range of
7% to 9%
2024 £28.3bn
Underlying net finance costs
c.£400m
Non-controlling interests
c.£90m
Effective tax rate
c.20%
36 BAE Systems plc  Annual Report 2024
Strategy and performance
Segmental review
Financial performance measures
as defined by the Group
1
Financial performance measures
as derived from IFRS
Year ended 31 December 2024
Sales
£m
Underlying
EBIT
£m
Return
on sales
%
Operating
business
cash flow
£m
Order
intake
£bn
Order
backlog
£bn
Revenue
£m
Operating
profit
£m
Return on
revenue
%
Net cash
flow from
operating
activities
£m
Order
book
£bn
KPI KPI KPI
Electronic Systems
READ MORE PAGE 38
7,189 1,071 14.9 801 7.3 12.7 7,186 708 9.9 1,044 8.6
Platforms & Services
READ MORE PAGE 40
4,390 448 10.2 732 7.4 14.3 4,344 456 10.5 976 13.6
Air
READ MORE PAGE 42
8,519 1,007 11. 8 1,243 8.3 26.8 6,880 1,009 14.7 1,359 15.6
Maritime
READ MORE PAGE 44
6,187 474 7.7 436 8.7 23.2 6,002 465 7.7 734 22.3
Cyber & Intelligence
READ MORE PAGE 46
2,411 199 8.3 139 2.4 1.8 2, 411 182 7.5 194 1.3
HQ
2
203 (184) – (258) 0.2 – 24 (135) – (207) –
Deduct Intra-group
(564) – – – (0.6) (1.0) (535) – – – (1.0)
Deduct Tax
3
– – – – – – – – – (175) –
Total
28,335 3,015 10.6 3,093
4
33.7 77.8 26,312 2,685 10.2 3,925 60.4
We use financial performance measures as defined by the Group to monitor the underlying financial performance of the Group’s
reporting segments. The definitions and purposes of these alternative performance measures, and the reconciliations from these
measures to the financial performance measures derived from IFRS, are provided in our Alternative performance measures section
onpage 220.
1. The definition and purpose of all performance measures defined by the Group are provided in the Alternative performance measures section on page 220.
2. HQ comprises the Group’s head office activities, together with a 17% interest in Air Astana as at 31 December 2024.
3. Tax is managed on a Group-wide basis.
4. At a Group level, the key cash flow metric is free cash flow (see Alternative performance measures on page 220). In2024, free cash flow was £2,505m (2023 £2,593m).
37BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Electronic Systems
Electronic Systems, with 22,400
1
employees, comprises
theGroup’sUS- and UK-based Electronic Systems business
andtheUS-based Space & Mission Systems business.
C4ISR Systems provides actionable intelligence
through innovative technical solutions for airborne
persistent surveillance, secure communications,
identification systems, signals intelligence,
underwater and surface warfare solutions, and
space resiliency.
Controls & Avionics Solutions develops and
produces electronics for military and commercial
aircraft, including fly-by-wire flight controls,
fullauthority digital engine controls, power
management solutions, cabin management
solutions and mission systems.
Countermeasure & Electromagnetic Attack
Solutions provides next-generation threat
detection, countermeasure and attack solutions
that deliver full-spectrum electronic warfare
capabilities to enhance mission survivability.
Electronic Combat Solutions designs, builds
andsupports integrated electronic warfare
systems for platform prime and government
customers and is a trusted mission systems
provider for all three electronic warfare missions:
electronic attack, electronic protection and
electronic support.
Precision Strike & Sensing Solutions designs
andmanufactures state-of-the-art systems and
technology that enable our customers to execute
their precision strike missions.
Power & Propulsion Solutions delivers
propulsionand power management
performance with innovative electrification
products and solutions that advance vehicle
mobility, efficiency and capability.
Space & Mission Systems delivers a range of
products and differentiated technologies for civil,
commercial and defence applications, including
world-class instruments, spacecraft, tactical
hardware, ground systems, data exploitation
solutions and mission-enabling technologies.
Operational performance
We continued to experience strong
demandacross our customer base for
Electronic Systems in 2024 as evidenced
byour order intake. We supported
existingcustomers on key electronic
warfareand precision guided-munition
programmes, while pursuing and
maturingnew opportunities.
After completing the Ball Aerospace
acquisition in mid-February to form our
SMSbusiness, we have made excellent
progress in integrating the organisation
intoour US operations. SMSis realising
costsynergies and meeting keyworkforce
integration milestones. It also continues
tohold and reap benefits from ‘synergy
summits’ to identify areas where our
businesses can partner to pursue and
capture new revenue opportunities for
theUS Intelligence Community, Department
of Defense and civilian space agencies.
In our commercial businesses, airline traffic
exceeded pre-pandemic levels, generating
stronger demand for aftermarket services.
However, Original Equipment Manufacturer
demand schedules are recovering from
supply chain and labour relation issues
experienced by airframe manufacturers.
Key operational points for the year
– Our SMS team marked multiple satellite
launches with our systems on board; the
Weather System Follow-on Microwave
satellite to bridge critical gaps in
environmental monitoring capabilities
forthe US Space Force and NASA’s Europa
Clipper mission that will orbit Jupiter and
conduct detailed observations of one of
itsmoons.
– We completed testing and delivered the
primary scientific instrument for the Nancy
Grace Roman Space Telescope to NASA’s
Goddard Space Flight Center. The Roman
Space Telescope is scheduled to launch
by2027 and we were selected as one of
three teams to mature a next-generation
stable optical system for the Habitable
Worlds Observatory – NASA’s next flagship
astrophysics mission.
– The F-35 Lightning II programme
completed deliveries on Lot 16 and is
delivering Lot 17/18/DTIP+ electronic
warfare (EW) systems for a cumulative
total of over 1,600 EW systems as at
yearend.
– The US AirForce Commander of Air
Combat Command declared the F-15EX
programme of record had successfully
achieved initial operating capability by
delivering eight F-15EXs equipped with
the Eagle Passive Active Warning
Survivability System. BAESystems is on
contract through Boeingfor Full-Rate
Production Lot 5.
38
BAE Systems plc  Annual Report 2024
Strategy and performance
– The EA-37B programme is executing
contracts, inclusive of international
support, valued at more than $1.0bn
(£0.8bn). The team is focused on the
cross-decking ofprime mission equipment
to the new EA-37B aircraft while sustaining
and upgrading the existing EC-130H fleet.
We have delivered three EA-37B aircraft
forformal testing and training to the
USAir Force, which will evolve its
electromagnetic attack capabilities.
– We are under contract to deliver additional
Network Tactical Common Datalink
production systems to support US Navy
requirements for real-time intelligence,
surveillance, reconnaissance, and
command and control. Systems are
currently being installed on US Navy
aircraft carriers and Constellation-class
guided-missile frigates.
– We delivered our first RAD510™ software
development unit to a space customer.
The RAD510 builds on our proven legacy
of space processing to provide the next
generation of radiation-hardened space
computing. These software development
units will enable our customers to integrate
their software for testing prior to receiving
flight units for their space systems.
Strategic and order highlights
– We continue to support the F-35 Block 4
EW modernisation that is on track to begin
incremental production starting with Lot
17, with full lot complete byLot 19.
– We were awarded the first task orderof
$116m (£91m), with follow-on production
awards expected, to provide terminals and
spares for the Multifunctional Information
Distribution System Joint Tactical Radio
System from Data Link Solutions, our joint
venture withCollins Aerospace, Inc.
– Production continues on the APKWS®
laser-guidance kit programme under an
Indefinite Delivery, Indefinite Quantity
(IDIQ) contract, and we demonstrated
theAPKWS counter-unmanned aircraft
systems capability, leading to orders
supporting both ground-to-air and
air-to-air configurations.
– Our Navigation & Sensor Systems team
received the annual order for military GPS
receivers for strategic munitions under
another five-year IDIQ contract with a
major US defence prime.
– After receiving two new contracts in May
on the National Oceanic and Atmospheric
Administration’s (NOAA) Geostationary
Extended Observations (GeoXO) satellite
constellation, SMS is contracted to build
allthree hyperspectral instruments for
themission totalling approximately
$1.3bn(£1.0bn). The GeoXO satellites
areexpected to launch in the early
2030sas NOAA’s current geostationary
weather satellites near the end of their
planned mission.
Looking forward
– Our Electronic Systems sector remains
positioned for growth in the medium
term. We maintain a diverse portfolio
ofdefence and commercial products
andcapabilities for US and international
customers and expect to benefit from
applying innovative technology solutions
to defence customers’ existing and
changing requirements, building on
oursignificant roles on F-35 Lightning II,
F-15upgrades, EA-37B, M-Code GPS
upgrades and classified programmes,
aswellas a number of precision
weaponproducts.
– Over the long term, we are poised to
buildon our technology strengths in
emerging areas of demand, including
precision weaponry, space resilience,
hyper-velocity projectiles, autonomous
platforms and the development of
multi-domain capabilities.
– In our commercial portfolio, we continue
to leverage our electric drive propulsion
capabilities to address growingdemand
for low- and zero-emission solutions across
an increasing number of civil platforms,
with opportunities to migrate these
technologies to defence applications.
– In SMS, we continue to grow our expanding
space portfolio, while also leveraging our
proven capabilities in tactical systems to
diversify our market presence. We continue
to focus on cross-segment collaboration
toidentify new opportunities, unlock
synergies and drive future growth.
1. Including share of equity accounted investments.
2. Growth rates for sales and underlying EBIT are on a constant currency basis. All other growth rates and year-on-year movements are on a reported currency basis.
Sales by line of business
A Electronic Combat Solutions 23%
B Space & Mission Systems 20%
C C4ISR Systems 17%
D Precision Strike & Sensing Solutions 15%
E Controls & Avionics Solutions 13%
F Countermeasure & Electromagnetic Attack 10%
G Power & Propulsion Solutions 2%
C
D
E
F
G
A
B
Sales analysis: Defence and commercial
A Defence 88%
B Commercial 12%
B
A
Asderivedfrom IFRS
2024 2023 Variance
2
Revenue £7,18 6m £5,456m +32%
Operating profit £708m £806m –12%
Return on revenue 9.9% 14.8% –490bps
Cash flow from operating activities £1,044m £961m £83m
Order book £8.6bn £7.6bn £1.0bn
Asdefined by the Group
2024 2023 Variance
2
Sales
KPI
£7,189m £5,458m +35%
Underlying EBIT
KPI
£1,071m £878m +25%
Return on sales 14.9% 16.1% –120bps
Operating business cash flow £801m £811m £(10)m
Order intake
1
KPI
£7.3bn £6.7bn £0.6bn
Order backlog
1
£12.7bn £8.9bn £3.8bn
MORE INFORMATION: FINANCIAL REVIEW PAGE 30
39BAE Systems plc  Annual Report 2024
Financial performance
Strategic report Financial statements Additional informationGovernance
Operational performance
We have continued to scale operations to
meet continued demand forour products
and services, including munitions, tracked
combat vehicles, artillerysystems and
support services.
In the US, our Combat Mission Systems
teamcontinues to produce at increased
volumes across our key combat vehicle
andnaval programmes. Our US network
ofmanufacturing facilities is delivering
against customer demand, with support
from our operations and engineering teams.
We also continue to expand our production
capabilities, whilst leveraging our
investments in advanced manufacturing
technologies, such as robotic welding
capability, test and integration, paint
andhigh-precision machining.
Our Hägglunds team continues to grow
arecord backlog of orders, with more
contracts for CV90 combat vehicles
forSweden and partner nations looking
toreplenish combat vehicle fleets, mainly
following donations in kind to Ukraine.
Inparallel, major upgrade programmes
continue for existing fleets of CV90s for
anumber of nations.
In our support services operations,
modernisation and maintenance
activitiescontinue in our US shipyards for
theUSNavy’s non-nuclear fleet. In addition,
the team is investing to expand our
submarine manufacturing offering in
orderto meet the US Navy’s shipbuilding
requirements by taking on additional
production programmes.
Across the US Army’s two munitions
facilitiesat the Radford and Holston
ammunition plants, we are working to
support the US Army’s efforts to increase
155mm artillery ammunition production.
Platforms & Services
Platforms & Services, with 11,600
1
employees and operations
intheUS, Sweden and the UK, manufactures and upgrades
combatvehicles, weapons and munitions, and delivers services
andsustainment activities, including US naval ship repair and
themanagement and operation of two government-owned,
contractor-operated ammunition plants.
Combat Mission Systems focuses on a portfolio
of tracked combat vehicles, amphibious vehicles,
naval weapons, artillery systems, advanced
weapons and precision munitions for the
USmilitary and international customers.
Ordnance Systems Inc. manages the USArmy’s
Holston and Radford ammunition plants under
government-owned, contractor-operated
agreements and focuses on explosives and
propellants production and facility modernisation.
US Ship Repair is a major provider of
non-nuclearship repair, modernisation,
overhauland conversions to the US Navy
andother government and commercial
maritimecustomers across three US sites
ontheAtlantic and Pacific coasts.
BAE Systems Hägglunds, based in Sweden,
focuses on the tracked vehicle market for
Swedishand international customers.
BAE Systems Bofors, also based in Sweden,
provides advanced land and maritime
weaponsand precision-guided munitions.
Weapon Systems UK is a provider of
land-basedartillery systems, sustainment
andservices, primarily for the M777 towed
ultra-lightweight howitzer.
40
BAE Systems plc  Annual Report 2024
Strategy and performance
Key operational points for the year
– Full-rate production of the US Army’s
AMPV programme is underway and we
are delivering all five variants in the family
of vehicles toArmored Brigade Combat
Teams. Theteam has invested in the
development of four additional AMPV
prototypes, each featuring different mission
equipment packages, further demonstrating
the modular platform’s future capability
options. The US Marine Corps is also
growing its fleet of ACVs, which had its
first successful operationaldeployment.
– Our Hägglunds team continues to ramp up
production capabilities with investments
of more than $200m (£160m) in advanced
manufacturing capabilities, a new customer
test and acceptance centre and additional
office space. A third weld line for CV90s is
under construction and expected to be
operational in 2026.
– We continue to progress a modern
shipliftand land-level repair complex
atourJacksonville, Florida, shipyard that
isexpected to be operational in 2025.
– Two portfolio-adjusting transactions
completed in December: the sale of our
49% share of our Turkish jointventure
FNSS to partner Nurol Holdingsand the
sale of the Anniston Forgeand Spares
business in Alabama, US.
Strategic and order highlights
– Our Combat Mission Systems team
secured a $754m (£590m) order from
theUS Army for the second phase of
AMPV full-rate production, securing
production through to February 2027.
Wealso received a follow-on contract
tothis second phase for additional
AMPVs,valued at $184m (£144m).
– We secured a five-year contract, valued
upto $318m (£249m), from the US Army
to perform technical and sustainment
support services for its fleet of M109A6
and A7 Self-Propelled Howitzers and
theircompanion, M992A3 Ammunition
Carriers. In addition, we received a $493m
(£386m) contract for additional orders
ofthe M109A7 and M992A3, extending
new production through toJuly2026.
– Using supplemental funding, the US Army
contracted BAE Systems to deliver
conversions of legacy analogue Bradleys
tothe modern A4 variant. Themost recent
September and December contracts,
jointly worth over $800m (£626m), include
the conversions of moreA4 variants, some
of which are replacing the Bradleys the
USGovernment has provided to Ukraine.
These production contracts extend vehicle
deliveries into2027.
– In the first half, our Hägglunds business
signed aframework agreement with the
Danish Ministry of Defence to provide
repair and maintenance services for the
Danish Army’s CV90s over a 15-year
period, worthapproximately $355m
(£278m) including options.
– Building on an initial contract in May,
ourHägglunds business received orders
inDecember bringing the total value to
approximately $2.5bn (£2.0bn) for CV9035
MkIIIC vehicles for both Sweden and
Denmark. In addition to spares, logistics
and training support, the agreement
includes more than 165new-build
vehicles, plus some vehicles for Ukraine.
– Our US Ship Repair business received
multiple US Navy contracts in the year
supporting backlog into 2025. Our
Jacksonville Ship Repair business was
awarded contracts by General Dynamics
Electric Boat for deck module fabrication
for both US Navy Columbia- and Virginia-
class submarines.
Looking forward
– We continue to shape our business to
deliver on increased demand from US and
international customers for production
and sustainment of combat vehicles and
artillery systems. We are also maintaining
our position as a key supplier of US Army
combat vehicles through our AMPV,
M109A7 and M88 franchises. In addition,
following the performance of Bradley
inUkraine, we are working with the
USArmy to develop the most advanced
Bradley configuration to date, the
M2A4E1, which features an enhanced
range of defence capabilities. We are
seeing increased international interest
inthese products.
– Across our Swedish businesses, we
continue to build a growing pipeline
ofbusiness opportunities for the CV90,
BvS10 and Beowulf from our Hägglunds
business, as well as for artillery, naval and
air defence systems and munitions from
our Bofors business.
– We are maintaining our strong positions
on naval guns, missile launch and
submarine programmes, as well as
USNavy ship repair and modernisation
activities where the business has invested
in capitalised infrastructure and facilities
inkey home ports.
1. Including share of equity accounted investments.
2. Growth rates for sales and underlying EBIT are on a constant currency basis. All other growth rates and year-on-year movements are on a reported currency basis.
Sales by line of business
A Combat Mission Systems 50%
B US Ship Repair 15%
C BAE Systems Hägglunds 14%
D Ordnance Systems 12%
E BAE Systems Bofors 5%
F Weapon Systems UK 3%
G FNSS 1%
C
D
E
F
G
B
A
Sales analysis: Platforms and services
A Platforms 58%
B Services 42%
B A
Asderivedfrom IFRS
2024 2023 Variance
2
Revenue £4,344m £3,842m +13%
Operating profit £456m £373m +22%
Return on revenue 10 .5% 9.7% +80bps
Cash flow from operating activities £976m £624m £352m
Order book £13.6bn £11.1bn £2.5bn
Asdefined by the Group
2024 2023 Variance
2
Sales
KPI
£4,390m £3,922m +15%
Underlying EBIT
KPI
£448m £354m +29%
Return on sales 10.2% 9.0% +120bps
Operating business cash flow £732m £426m £306m
Order intake
1
KPI
£7.4bn £7.7bn £(0.3)bn
Order backlog
1
£14.3bn £11.5bn £2.8bn
MORE INFORMATION: FINANCIAL REVIEW PAGE 30
41BAE Systems plc  Annual Report 2024
Financial performance
Strategic report Financial statements Additional informationGovernance
Operational performance
We continue to work with our UK and
international customers to support their
existing platforms and provide new enhanced
capabilities. Deliveries of Typhoon aircraft
toQatar continue, alongside support to the
in-service fleet. Our US Programmes division
remains focused on delivery execution across
all production lines. Our Future Combat Air
and FalconWorks® organisations continue
toinvest in our people, facilities and
cutting-edge technologies.
Key operational points for the year
– In the Kingdom of Saudi Arabia, we
continued to deliver services under
thefive-year Saudi British Defence
Co-operation and Salam programmes,
including our support to the Royal Saudi
Air Force’s Tornado and Typhoon fleets.
– Activity on our Qatar Typhoon and Hawk
programmes continued with four Typhoon
deliveries in the year. 22 Typhoon aircraft
have entered into service with the Qatar
Emiri Air Force.
– Development continued on the UK’s
FlyingCombat Air Demonstrator, which
willtest the next-generation skills, tools,
processes and techniques needed to
underpin GCAP and the entry intoservice
of the coreaircraft platform, which will
becalled Tempest in the UK.
– Through FalconWorks®, we continue to
invest in promising new and innovative
technologies for the future, including the
development of uncrewed systems in
collaboration across industry. PHASA-35®,
our persistent high-altitude solar-powered
aircraft, completed another successful
stratospheric flight trials programme
duringthe year.
Air
Air, with 27,800
1
employees, comprises the Group’s UK‑based
airbuildand support activities for European and international
markets,US programmes, development of our Future Combat Air
System and FalconWorks
®
, alongside our business in the Kingdom
ofSaudi Arabia and interests in our European joint ventures:
Eurofighter and MBDA.
Our UK-based business includes UK and
international programmes for the production
ofTyphoon combat aircraft, support, training
andupgrades for Typhoon and Hawk, support
and upgrades for Tornado, and development
ofnext‑generation combat air technologies
anddefence information systems, as well as
theUK‑based F‑35 Lightning II manufacture,
engineering development and support activity.
In the Kingdom of Saudi Arabia, we provide
operational capability support to the Kingdom’s
air and naval forces through UK‑Saudi
government‑to‑government programmes.
TheSaudi British Defence Co‑operation
Programme and Salam Typhoon project
providefor multi‑year contracts between
thegovernments.
MBDA is a leading global prime contractor
ofmissiles and missile systems across the
air,maritime and land domains.
42
BAE Systems plc  Annual Report 2024
Strategy and performance
Strategic and order highlights
– We have agreed to form a joint venture
with Leonardo in Italy and JAIEC in Japan,
subject to regulatory approvals, forthe
design and development of anext-
generation combat aircraft, underGCAP.
– Alongside this, concept and assessment
work on GCAP continues with our
international partners in Italy and Japan
under our respective national contracts.
– We also confirmed orders for our
workshare on an additional 25 Typhoon
aircraft for the Spanish Air Force and for
anorder for up to 24 Typhoon aircraft
forthe Italian Air Force. These were valued
at a combined initial total of £1.1bn.
– We sustained production of the rear
fuselage assemblies for the F-35 at full-rate
levels at our Samlesbury site in the UK,
with 152 aft fuselages completed, and
agreed pricing with Lockheed Martin for
F-35 production lots 18/19. This supports
the continuation of production deliveries
at Samlesbury into 2027.
– During the first half of 2024, we
completedthe acquisitions of Malloy
Aeronautics and Callen-Lenz,
strengthening our position in the fixed
wing and rotary UAS domains.
– MBDA continued to secure significant
orders through 2024. These include a
largeproduction order from the Polish
Armament Agency to supply launchers
and CAMM-ER (Common Anti-Air
Modular Missile Extended Range) for
theNAREW Air Defence System. Other
airdefence production orders were
received for Aster missiles for the Italian
Armed Forces, Patriot GEM-T missiles
(under theEuropean Sky Shield Initiative
via theCOMLOG Joint Venture) for the
NATOSupport and Procurement Agency,
and an expansion of Sea Ceptor with
CAMM to include the Polish, Swedish
andSaudi Arabian navies.
Looking forward
– GCAP is a strategically important
partnership that will foster innovation,
technological advancements and
safeguard long-term industrial capability
to design, develop, manufacture and
maintain combat aircraft and the wider
systems within which they will operate
inthe UK.
– We will continue to focus on ensuring that
deliveries of Typhoon aircraft and support
are made in line with agreed customer
milestones. Future Typhoon production
and support sales are underpinned by
existing contracts and discussions continue
to secure potential further contract awards.
– We expect production of the rear fuselage
assemblies for the F-35 to be sustained
atcurrent levels. We play a significant role
in the F-35 sustainment programme in
support of Lockheed Martin and support
volumes should increase as the number
ofjets in service continues to rise.
– In the Kingdom of Saudi Arabia, the
In-Kingdom Industrial Participation
programme continues to make good
progress consistent with our long-term
strategy, whilst supporting the Kingdom’s
National Transformation Plan and Vision
2030. This included a further package
ofindustrialisation agreed during 2024
onour Salam programme.
– We expect our Saudi in-Kingdom support
business to remain stable, underpinned
bylong-standing contracts,while we
continue to address theKingdom’s current
and future combat air requirements.
– Our FalconWorks® organisation will
continue to pursue internal and external
investment opportunities which enhance
our capabilities and technologies.
– MBDA has a strong order backlog.
Development programmes continue
toimprove the long-term capabilities of
the business in air, land and sea domains.
MBDA continues to be well placed to
benefit from increased defence spending
in Europe and internationally.
1. Including share of equity accounted investments.
2. Growth rates for sales and underlying EBIT are on a constant currency basis. All other growth rates and year-on-year movements are on a reported currency basis.
Sales by line of business
A Kingdom of Saudi Arabia 33%
B European and International Markets 25%
C MBDA 18%
D US Programmes 14%
E Future Combat Air System 8%
F FalconWorks® 2%
C
E
F
B
D
A
Sales analysis: Platforms and services
A Platforms 51%
B Services 49%
B A
Asderivedfrom IFRS
2024 2023 Variance
2
Revenue £6,880m £6,517m +6%
Operating profit £1,009m £948m +6%
Return on revenue 14.7% 14.5% +20bps
Cash flow from operating activities £1,359m £1,808m £(449)m
Order book £15.6bn £18.5bn £(2.9)bn
Asdefined by the Group
2024 2023 Variance
2
Sales
KPI
£8,519m £8,058m +7%
Underlying EBIT
KPI
£1,007m £949m +7%
Return on sales 11.8% 11. 8% –
Operating business cash flow £1,243m £1,669m £(426)m
Order intake
1
KPI
£8.3bn £11.0 bn £(2.7)bn
Order backlog
1
£26.8bn £27.2bn £(0.4)bn
MORE INFORMATION: FINANCIAL REVIEW PAGE 30
43BAE Systems plc  Annual Report 2024
Financial performance
Strategic report Financial statements Additional informationGovernance
Operational performance
Our major Maritime platform programmes
continue to progress. We have delivered five
of the seven Astute Class submarines to the
Royal Navy and continue construction on the
first three Dreadnought Class submarines.
Construction of the first five UK Type 26
frigates and first Australian Hunter Class
frigate is also underway, while we continue
to deliver on customer requirements in both
Munitions and Maritime Services. Ongoing
investments inour facilities and our people
support our delivery and, with the future
potential of theAUKUS trilateral programme,
the sector is well positioned for growth.
Key operational points for the year
– We launched the sixth Astute Class
submarine, Agamemnon, marking the
start of its in-water phase, while we
continue construction on the final vessel
inthe class.
– We continued to make progress on the
fourDreadnought Class submarines, with
advancing levels of construction underway
on the first three submarines in the class,
at our site in Barrow-in-Furness, UK.
– On the Type 26 frigate programme of
eight ships, investment continues both
internally and within the supply chain to
support delivery, with the transition from
design to production remaining a key area
of focus. HMS Glasgow is progressing from
final outfit through to the key stages in her
test and commissioning phase in advance
of first of class sea trials. The second
ofclass, HMS Cardiff, entered the water
inAugust, before transitioning to our
Scotstoun shipyard for further outfit in
advance of testing and commissioning.
Unit construction continues on HMS Belfast
and HMS Birmingham at our Govan
shipyard. Cut steel on the fifth ship,
HMSSheffield, took place in November.
– InOctober, there was a fire in our
Devonshire Dock Hallfacility in Barrow-in-
Furness, UK, the impact of which is
currently being assessed.
– In Australia, we successfully completed
theHunter Class Frigate Programme
Production Readiness Review andentered
the construction phase, officially cutting
steel onthefirst ship in June.
Maritime
Maritime, with 30,100
1
employees, comprises the Group’s UK‑based
maritime and land activities, including ship build and support activities,
major submarine build programmes, as well as our Australian business.
Maritime programmes include the construction
of seven Astute Class submarines for the Royal
Navy, as well as the design and production of the
Royal Navy’s four Dreadnought Class submarines
and eight Type 26 frigates, and the design of the
SSN‑AUKUS submarines for the UK and Australia.
The Maritime portfolio also offers in‑service
support, including the delivery of training services
and providing worldwide engineering support
tothe Royal Navy’s Portsmouth‑based surface
flotilla on behalf of the UK Ministry of Defence,
aswell as the design and manufacture of combat
systems, torpedoes and radars.
Land UK’s munitions business designs,
developsand manufactures a comprehensive
range of munitions products for a number
ofcustomers including our main customer,
theUK Ministry of Defence.
Rheinmetall BAE Systems Land (RBSL) –
ourUK‑based joint venture with Rheinmetall
–specialises in the design, manufacture
andsupport of military vehicles used by
theBritish Army and international customers.
Land UK also develops and manufactures
cased‑telescoped weapons through our
CTAInternational joint venture.
In Australia, the business delivers platforms,
upgrade and support programmes for customers
in defence across the air, maritime and land
domains. This includes the Hunter Class Frigate
Programme and Jindalee Operational Radar
Network (JORN) upgrade. Services contracts
include the provision of sustainment, training
solutions and upgrades.
44
BAE Systems plc  Annual Report 2024
Strategy and performance
– Alongside this, the upgrade and
sustainmentof the Anzac Class frigates
continues to progress with the penultimate
ship, HMAS Ballarat, being returned to
water. The final ship, HMAS Parramatta,
isexpected tobe returned in 2025.
– We made good progress on the
installation of Radar 1 as part of the
JORNPhase 6 upgrade with successful
completion of half-radar trials enabling
our team to start the full upgrade.
– Investment activity across our
Munitionsbusiness continues at pace.
Thisincludes an additional manufacturing
line in Washington, UK, andan explosives
filling facility in Monmouthshire, UK.
– In RBSL, the Challenger 3 programme has
delivered four prototype series vehicles,
with two of those vehicles completing
theinitial phase of trials. A further four
prototype series vehicles will be completed
in 2025, two of which are nearing
completion, ahead of entering the next
phase of trials in 2025.
Strategic and order highlights
– In Australia, the release of the Surface
Combatant Review confirmed the
Government’s commitment to the
production of six Hunter Class frigates,
with the contract for the first batch of
three ships awarded in June. Following
thecancellation of the TransCAP element
ofthe Anzac Class frigate upgrade
programme, we are working with the
Commonwealth to determine the
appropriate use of our Henderson
facilityin Western Australia.
– We secured an order of £958m for the
continuation of funding for Dreadnought
Boats 2 to 4.
– In March, as part of the AUKUS trilateral
security pact, the Australian Government
announced its selection of BAE Systems
and ASC Pty Ltd (ASC) to deliver Australia’s
SSN-AUKUS submarines. In December,
wewere awardedthe first Tasking
Statement under the mobilisation
arrangements, following successful
government-to-government engagement
to initiate Australia’s SSN-AUKUS
buildprogramme.
– The Ministry ofDefence awarded our
Combat Systems team within our Naval
Ships business a£285m contract to
support the Royal Navy’s Shared
Infrastructure, Combat Management
Systems and warshipnetworks.
– The build of our new Ship Build Assembly
Hall in Govan, UK, is maturing toschedule
andwe expect it to be fully operational in
2025. Our Applied Shipbuilding Academy
in Glasgow, UK, opened in July, and is
already proving to be a key training facility
for our Naval Ships’ current and future
workforce. Readmore on page 13.
Looking forward
– Our Submarines business is executing
across three long-term programmes:
Astute, Dreadnought and SSN-AUKUS.
Our focus remains on strengthening our
workforce, supply chain and infrastructure
to provide the capability, capacity and
resilience required to deliver these
long-term programmes.
– We will work with ASC to deliver initial
mobilisation activities to support
Australia’s SSN-AUKUS submarine
buildprogramme.
– We submitted design and production
outputs for the Canadian River Class
destroyer to enable our partner, Irving
Shipbuilding Inc., to manufacture the
production test module in Canada.
– In Australia, we are a key partner to the
Commonwealth in the delivery of its
National Defence Strategy (NDS), which
seeks a strategy of denial and an integrated,
focused force. AUKUS nuclear-powered
submarines, an enhanced lethality surface
fleet, strategic surveillance and long-range
strike are prioritised in the Integrated
Investment Plan which supports the NDS.
– As the UK Ministry of Defence’s long-term
strategic partner for munitions supply,
wecontinue to focus our operations in
support of the UK Ministry of Defence
andthe UK’s NATO allies, as well as
othercustomers.
1. Including share of equity accounted investments.
2. Growth rates for sales and underlying EBIT are on a constant currency basis. All other growth rates and year-on-year movements are on a reported currency basis.
Sales by line of business
A Submarines 44%
B Naval Ships 29%
C Australia 19%
D Land UK 8%
A
B
D
C
Sales analysis: Platforms and services
A Platforms 71%
B Services 29%
B A
Asderivedfrom IFRS
2024 2023 Variance
2
Revenue £6,002m £5,391m +11%
Operating profit £465m £423m +10%
Return on revenue 7.7% 7.8% –10bps
Cash flow from operating activities £734m £629m £105m
Order book £22.3bn £20.4bn £1.9bn
Asdefined by the Group
2024 2023 Variance
2
Sales
KPI
£6,187m £5,536m +12%
Underlying EBIT
KPI
£474m £425m +12%
Return on sales 7.7% 7.7% –
Operating business cash flow £436m £291m £145m
Order intake
1
KPI
£8.7bn £10.1bn £(1.4)bn
Order backlog
1
£23.2bn £21.3bn £(1.9)bn
MORE INFORMATION: FINANCIAL REVIEW PAGE 30
45BAE Systems plc  Annual Report 2024
Financial performance
Strategic report Financial statements Additional informationGovernance
Operational performance
Our Intelligence & Security business
performed well, delivering innovative
solutions to government customers within
the US Department of Defense, federal
agencies and civilian organisations.
Wecontinue to focus on maintaining
arobust pipeline of qualified business
opportunities to provide ongoing
mission‑critical integration capabilities
thataddress evolving customer and
nationalsecurity requirements.
Our Digital Intelligence business saw
continued demand in the security market
and rigorous cost control helped to
compensate for constrained customer
budgets in other areas.
Key operational points for the year
– As part of the Ball Aerospace acquisition in
February, we acquired Topaz Intelligence,
which expands our modelling and
simulation portfolio to provide data
intelligence‑as‑a‑service to drive agile
decision‑making for customers.
– Through our Bohemia Interactive
Simulations business, we secured a
follow‑on development and production
order from the US Army PEO-STRI for
VBS4, Mantle andBlueIG product licences
in support of the Training Simulation
Software and Training Management
Toolsprogramme toaddress advanced
USArmy-wide training solutions.
Cyber & Intelligence
Cyber & Intelligence, with 10,900
1
employees, comprises the
US‑based Intelligence & Security business and UK‑headquartered
Digital Intelligence business and covers the Group’s cyber
securityactivities for national security, central government
andgovernmententerprises.
Intelligence & Security is made up of three
US‑based business units.
Air & Space Force Solutions provides the US Air
Force, US Space Force and combatant commands
with innovative systems engineering and
integration solutions to modernise, maintain, test
and cyber‑harden aircraft, radars, strategic missile
systems, mission applications and information
systems that detect, deter and dissuade national
security threats.
Integrated Defense Solutions provides the
USArmy and Navy with systems engineering,
integration, and sustainment services for critical
weapon systems, C5ISR (Command, Control,
Computers, Communications, Cyber, Intelligence,
Surveillance and Reconnaissance) and cyber
security that enhance mission effectiveness.
Oursolutions are deployed across platforms
andnetworks in the air, maritime, land and
cyberdomains.
Intelligence Solutions provides innovative
mission‑enabling solutions and services to
intelligence and federal/civilian agencies, as
wellas the provision of cost‑effective synthetic
training and simulation software products and
components for global defence applications.
Digital Intelligence provides products and
expertise in cyber, intelligence and security
tohelpprotect nations, businesses and citizens.
Oursolutions span customers in law enforcement,
national security, central government and
government enterprises, critical national
infrastructure, telecommunications, military
andspace.
46
BAE Systems plc  Annual Report 2024
Strategy and performance
– Our Air and Space Force Solutions
businesscontinues to expand its presence
under the Instrumentation Radar Support
Program providing support to 33 ranges
around the world for the US Army,
USNavy, US Air Force, US Space Force,
Department ofEnergy, NASA and various
international ranges. During 2024, we
wereawarded 250+task orders valued
at$198m (£155m). Under this contract,
wewill provide six mobile mechanical
andmultiple object radartracking
systems,systems engineering and
rangesupport activities.
– In our Digital Intelligence business
investment in our product portfolio
continues, with good progress made on
developing cross‑domain products for the
USand other international markets, low
Earth orbit satellites and multi‑domain
network solutions for the defence market.
Strategic and order highlights
– Our Intelligence Solutions business
secured over $300m (£235m) intask
orders on an IDIQ contract from
anagency. Task orders include delivery
ofanalytics support for critical and core
mission functions to the agency and its
missionpartners.
– We were notified, in June 2024, that the
Government Accountability Office had
sustained our protest on the Integration
Support Contract (ISC) 2.0 procurement
and recommended the US Air Force take
additional corrective action. The Air Force
subsequently cancelled the solicitation.
InJanuary 2025, we were awarded an
extension to our current ISC services
contract with options through to July
2027,with an increased programme
ceiling value of nearly $1.2bn (£0.9bn).
– Our Integrated Defense Solutions
businesswas awarded a cost-plus-fixed-
fee contract worth $122m (£95m) for
systems engineering and integration
services and expert studies in support of
the US Trident II Strategic Weapons Systems
Program and D5LE2 Life Extension 2
Strategic System Programs Alteration.
– We also secured a $251m (£196m) contract
from the US Navy for on-site technical
expertise and system engineering to
validate total AEGIS ship combat system
design in support of the US Navy, Missile
Defense Agency and foreign militaries.
– Our Integrated Defense Solutions business
was also awarded multiple re‑compete
contracts in the year with a combined
totalpotential lifecycle value of over
$500m (£391m).
– Our acquisition of Kirintec in Digital
Intelligence further expands our
productoffering. Kirintec specialises in:
cyber and electromagnetic activities;
counter‑improvised explosive devices;
andcounter-uncrewed aerial vehicle
products for military customers. Our
Digital Intelligence team will look
toleverage this capability to accelerate
growth in the defence market in the
UKand internationally.
Looking forward
– Our Intelligence & Security business
maintains a strong pipeline of qualified
business opportunities. While there
havebeen some delays inprocurement
decisions from the USDepartment of
Defense, we are seeing an increase in
demand driven by persistent global
security challenges.
– The US defence services market remains
fiercely competitive and can change
quickly basedon US government priorities.
OurIntelligence Solutions business has
identified cyber security as a key focus area
for business growth and we continue to
pursue opportunities in the Intelligence
Community, federal/civilian agencies
andthe US Department of Defense.
– We are actively broadening our
wargaming capabilities across new
markets and customers, both in the
USandinternationally. This strategy
enhances our growth potential and
diversification in the modelling, simulation
and synthetic training environment in
support of a positive outlook for this
market area.
– In Digital Intelligence, we will continue
toprogress the transformation roadmap
to ensure the business is well placedto
take advantage of favourable market
conditions over the medium and long
term, whilst also driving operational
efficiencies, through system integration
and a simplified organisational structure.
1. Including share of equity accounted investments.
2. Growth rates for sales and underlying EBIT are on a constant currency basis. All other growth rates and year-on-year movements are on a reported currency basis.
Sales by customer
A US Government 65%
B UK and other governments 30%
C Other 5%
C
B
A
Sales by business
A Digital Intelligence 30%
Intelligence & Security:
B Intelligence Solutions 29%
C Integrated Defence Solutions 21%
D Air & Space Force Solutions 20%
D
B
C
A
Asderivedfrom IFRS
2024 2023 Variance
2
Revenue £2,411m £2,321m +4%
Operating profit £182m £179m +2%
Return on revenue 7.5% 7.7% –20bps
Cash flow from operating activities £194m £261m £(67)m
Order book £1.3bn £1.4bn £(0.1)bn
Asdefined by the Group
2024 2023 Variance
2
Sales
KPI
£2,411m £2,321m +6%
Underlying EBIT
KPI
£199m £199m +2%
Return on sales 8.3% 8.6% –30bps
Operating business cash flow £139m £204m £(65)m
Order intake
1
KPI
£2.4bn £2.5bn £(0.1)bn
Order backlog
1
£1.8bn £2.0bn £(0.2)bn
MORE INFORMATION: FINANCIAL REVIEW PAGE 30
47BAE Systems plc  Annual Report 2024
Financial performance
Strategic report Financial statements Additional informationGovernance
We are committed to being a responsible business and doing our part to create
and secure a sustainable future.
Responsible business
Our approach to responsible business is
driven from the top down by our Chief
Executive and integrated throughout the
business from our strategy, our governance
systems and policies, to the integrated
financial planning process and business
review cycles.
Cross-functional and cross-sector steering
groups provide expertise and oversight and
our assurance framework and Internal Audit
regularly assess our compliance with policies
and processes.
Our Board Environmental, Social and
Governance (ESG) Committee provides
oversight, input and assurance of the
Group’s agenda and progress, including
approving the ESG-related objectives
andtargets that formpart of our
executiveincentives.
At each meeting, the Committee receives
input from both senior management and
the Group’s subject matter experts.
The Committee routinely reviews data and
participates in site visits and meetings to
engage directly with employees and hear
their views. This dialogue enables the
Committee to reflect employee perspectives
in boardroom discussions.
In addition, we have established a number of
employee groups which discuss and consider
various topics and provide feedback to the
Group ESG, Culture & Business
Transformation Director.
Clear and open two-way communication,
from the boardroom through the executive
team and across all our sites, encourages our
employees, at all levels of the business, in
their understanding of the organisation, the
role they play within it and to be proud of
what we are doing.
48 BAE Systems plc  Annual Report 2024
Responsible business
The following pages outline the progress we have made in advancing and
integrating our decarbonisation strategy and progress against our targets.
Climate and the environment
Our decarbonisation strategy addresses our
material climate-related risks, underpinning
both future business resilience and delivery
of capability to our customers.
The long-term nature of our projects and
order backlog, stretching out to 2040 and
beyond, mean we consider climate-related
risks across longer time horizons. Mitigation
plans are embedded in both our sectors’
five-year business plans and our ongoing
Business Continuity Management systems.
We assess the impact of our predicted
business growth to ensure both our energy
and infrastructure strategies are aligned to
our decarbonisation pathways.
Our decarbonisation strategy includes:
• assessing the physical and strategic
impacts of our sites and operations
onourability to achieve our near-term
GHGemissions reduction target across
ouroperations (Scope 1 and2) by 2030;
• supporting our customers on their climate
goals by developing energy efficient
products and services whilst maintaining
military operational advantage;
• engaging and developing the skills
andcapabilities of our employees to
driveinnovative solutions for energy
management and efficiency across our
operations and the product lifecycle;
• seeking to mitigate adverse environmental
impacts and being good stewards of
theenvironment in the locations where
we operate;
• climate advocacy through partnering and
collaborating with defence peers, through
industry associations, and with academia
and government to address climate and
environment matters; and
• working with our local communities to
support decarbonisation initiatives.
How we manage climate-related risk
Climate and environmental risk is embedded
in our approach to risk management
(seepage 55). We have identified and
assessed climate-related physical and
transition risks as part of our decarbonisation
strategy. Climate and environmental risk
isaddressed within the Group’s principal
risks: climate transition and environmental
factors; business interruption; and legal
risk(see pages 63 to 65).
Decarbonising our operations
The decarbonisation of our operations
underpins business resilience over the
longterm by managing the material
climate-related physical and transition
risksof our sites and operations.
We have reviewed the language of our
near-term reduction targets to reflect the
currently accepted market definition of net
zero (which encompasses Scopes 1, 2 and 3);
and considered current practice on
offsetting. Our 2030 reduction target
focuses on Scopes1 and 2 only. To this end,
we have revised the language of our target
from ‘achieving net zero GHG emissions
across ouroperations (Scopes 1 and 2)
by2030’ to‘reduce greenhouse gas
emissions across ouroperations (Scopes 1
and 2) by2030’. We continue to work
towards ourlong-term target of ‘working
towards anet zero valuechain by 2050’.
Our near-term target and KPI, embedded
inlong-term incentives (see page 113),
istoreduce GHG emissions across our
operations (Scopes 1 and 2) by 4.2%
year-on-year. Against this target, we have
achieved a 6.0% GHG emissions reduction,
excluding our SMS business, in 2024. Post the
integration of SMS into our environmental
data systems during 2024, inline with our
GHG basis of reporting and methodology
statement, during 2025 we will be
recalculating our 2020 GHG emissions
baseline to include theGHG emissions
ofthisbusiness.
Compliance with Task Force
onClimate-related Financial
Disclosures (TCFD)
In line with our obligation under UK Listing
Rule6.6.6R(8), we can confirm thatwe have
made disclosures consistent with the TCFD
Recommendations and Recommended
Disclosures (including the implementing
guidance set out in the 2021 TCFD Annex),
save for – Metrics and Targets, part b.
During 2024, we progressed internal
workstreams to understand the GHG
emissions associated with Scope 3 data,
butwe are not currently in a position to
disclose our total Scope 3 emissions data.
During 2025, we will continue to
progressinternal workstreams to better
our understanding of our Scope 3
GHGemissions related to our suppliers
andproducts and we expect to be able
toreport data by 2026.
Please go to page 226 to view a table
thatsummarises our disclosures relating
tothe four TCFD Recommendations and
11Recommended Disclosures as required
byUK Listing Rule 6.6.6R(8).
During 2024, our overall GHG emissions
increased by 6.0%, due to the integration
ofSMS and its associated GHG emissions
intothe Group (see page 50).
We have continued to progress activities
tomeet our near-term target. During 2024,
we established a renewable energy strategy
to address the transfer of electricity sourcing
to renewable energy across our sites,
providing energy security and future price
certainty for the Group. We have included
growth projections within the strategy,
which we review regularly. We now have
power purchase agreements in place
covering wind and solar projects, which
support our transition to renewable energy
from 2024. In the UK, at the end of 2024,
44% of our current electricity requirements
were met by renewable energy sources.
Weplan to have 90% of our global electricity
requirement met from renewable sources
by2030.
Site consolidation, new-build and
refurbishment projects provide further
opportunities for us to optimise and reduce
our energy consumption. We have significant
capital investment planned across our
UKsites over the next 10 years and are
integrating decarbonisation considerations
within our infrastructure programme,
incorporating energy efficiency and modern
building standards into both refurbishments
and newbuildings.
We are seeking to reduce energy use across
our sites and, where possible, switch to low
carbon alternatives to heat our buildings.
Projects include; metering, LED lighting
installations, energy switching for fleet
vehicles and initial investments in heat pump
and other gas-alternative heating systems.
Some examples of our innovative approach
include the use of infra-red ‘person heating’
pads at our shipyards in Scotland and
afeasibility study for hydrogenated
vegetable oil for our submarine machinery
testing system.
49
BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Climate and the environment continued
Our priority is to reduce our carbon emissions
as much as practicable and we are working
to minimise exposure to offsets. In parallel,
we are also developing a responsible
strategy to implement offsets as appropriate.
We continue to mature our assessment
andmanagement of the climate-related
physical risks and impacts across our global
facilities, implementing improvement
recommendations, including investment
toimprove and develop our facilities.
Wehave analysed all our global sites (510)
for climate-related physical risks, mapping
against climate scenarios and temperature
pathways across an 80-year outlook.
Wearenow working with the 66 sites we
have identified as having a higher potential
exposure to climate-related risk over that
period. For each site, we are considering
thepotential impact on both the site and
business continuity, and reviewing facilities
management and business continuity plans
to ensure appropriate mitigation is in place.
Value chain
We continued to work with our customers
todevelop and deliver products and services
that support their operational performance
and capability, whilst developing an energy
efficient pathway and embedding
environmental considerations within the
overall platform or capability.
The products and services we make now and
in the future need to operate under different
climate temperature scenarios over the
long-term. Our customers already operate
today in diverse temperature and bio-diverse
environments, supporting interoperability
role requirements from NATO, and address
logistical challenges globally – these
environments are only expected to become
more volatile as a consequence.
We are innovating to drive decarbonisation
of products and services for customers to
deliver energy security, resilience and
adaptation. We intend to achieve this through:
• energy efficiency;
• alternate fuels and in situ
energyproduction;
• electrification programmes; and
• new technology opportunities.
20–30%
3
of defence industry emissions
come from upstream activities, so it is key
that we collaborate and partner with our
suppliers. We estimate, using recognised
spend methodology, that 80% of our carbon
emissions come from less than 4% of suppliers.
We are prioritising engaging with these
suppliers, many of whom already have active
decarbonisation programmes in place.
We are expanding our understanding of
climate-related impacts on material scarcity
and supplier resilience.
3. Roland Berger – Defence Zero Volume 1: Military emissions and potential solutions https://www.asd-europe.org/focus-areas/innovate/sustainable-defence/
understanding-greenhouse-gas-emissions-from-defence.
Scopes
ofdefence
industry-
related
emissions
20–30% of defence emissions >65% of defence emissions5–10% of defence emissions
Scope 3 upstream Scope 3 downstream
Procured products, transport of
supplies, travel
Transport of products, usage of
sold products, product disposal
Scope 2
Electricity, heat
for manufacture
Scope 1
Operations
GHG emissions data
1,2
1 Emissions from activities which
BAESystemsowns orcontrols (Scope 1)
104,948
107,360
52,662
54,204
Total gross Scope 1
and 2 emissions
372,150
350,817
110,278
108,660
2 Emissions from the electricity, natural gas
andsteam purchased for BAE Systems’ use
(Scope 2 – location-based)
267,202
243,457
57,616
54,456
3 Emissions from employee business travel
included in Scope3
122,383
114,030
54,880
44,261
Global tonnes CO
2
e UK tonnes CO
2
e 2023 figures
OTHER SUSTAINABILITY INFORMATION/GHG METHODOLOGY STATEMENT PAGE 232
1. Relevant reporting period 1 January 2024 to 31 December 2024. The GHG emissions data includes the
SMS business and its associated GHG emissions. Comparative information covers the reporting period
from 1 November 2022 to 31 October 2023 and excludes the SMS business and its associated omissions.
2. Deloitte has provided independent limited assurance in accordance with the International Standard for
Assurance Engagements 3000 (ISAE 3000) and Assurance Engagements on Greenhouse Gas Statements
(ISAE 3410) issued by the International Auditing and Assurance Standards Board (IAASB). Deloitte’s full
unqualified assurance opinion, which includes details of the selected metrics assured, can be found at
baesystems.com/annual-report.
 ANALYSIS OF EMISSIONS FOR DEFENCE COMPANIES – ADAPTED FROM BOSTON CONSULTING GROUP REVIEW 2022
3
50 BAE Systems plc  Annual Report 2024
Responsible business
Environmental stewardship
We are committed to high levels of
environmental stewardship and aim
toconsume resources responsibly by:
• using energy efficiently; and
• reducing all types of waste
(eghazardous,non-hazardous,
radioactive) where we can.
We also seek to prevent adverse
environmental impacts by preventing
sources of contamination and to protect
thenatural environment from harm and
degradation in the geographies where
weoperate.
Consumption of resources and materials
canbe different year-on-year, due to
differences in geography across our
operations and the stage of manufacture
ofour platforms and programmes.
We are taking a business-led approach
tosetting reduction targets for waste
anddriving improvement programmes
andactivities to support responsible
consumption. We have a pilot programme
underway to explore lean optimisation of
manufacturing processes and alignment to
operational KPIs and identify how we can
reduce consumption and waste.
Biodiversity and natural capital
Loss of natural habitats poses various
riskstoboth the environment and
society.We continue to undertake surveys
andassessments to better evaluate
howourfacilities and operations impact
thesurrounding natural habitat.
Operationally, we are considering how
weprotect natural habitats, conserve
protected species and manage invasive
species in and around our sites.
We are also considering the value
ofnaturalcapital at some of our key
sites,egthe role vegetation plays
inpreventingcoastal erosion.
Employee engagement
We recognise that climate change and
environment are of interest to many of
ouremployees. We welcome and actively
encourage their input and suggestions
toour programmes. In 2024, we ran a
Company-wide competition, Sustainability
Showdown, inviting employees to input
actions they had taken at work or home
toreduce environmental impacts.
Together,we recorded more than
77,000actions taken.
Key environmental data
Waste production (tonnes)
1
A
B
C
48%
recycled
(2023 48%)
2024 2023
A Non-hazardous 55,305 58,482
B Hazardous 4,952 9,308
Total 60,257 67,790
C Recycled 29,200 32,870
Electricity consumption (kWh)
A
B
0.3%
renewable
(2023 0.3%)
2024 2023
A Grid 803,847,418 755,301,151
B Renewable 2,505,945 2,083,735
Total 806,353,363
2
757,384,8 86
OTHER SUSTAINABILITY INFORMATION/
GHG METHODOLOGY STATEMENT PAGE 232
1. BAE Systems Internal Audit has reviewed the
systems, processes and controls in place to
collate, validate and report this data. Based
onthe procedures and the evidence obtained,
nothing has come to its attention that indicates
the disclosures have not been properly
prepared in accordance with such systems,
processes and controls.
2. Deloitte has provided independent limited
assurance in accordance with the International
Standard for Assurance Engagements 3000
(ISAE 3000) and Assurance Engagements
onGreenhouse Gas Statements (ISAE 3410)
issuedby the IAASB. Deloitte’s full unqualified
assurance opinion, which includes details of
theselected metrics assured, can be found
atbaesystems.com/annual-report.
4.3 tonnes
of waste avoided
equivalent to almost
19,000 plastic bottles.
42.6 TC0
2
e
emissions saving
equivalent emissions of
travelling 163,000 miles in a
modern petrol car (or around
the world 6.5 times).
Almost 42 MWh
energy saved
would power an average UK
household for 11 years.
 SUSTAINABILITY SHOWDOWN – EMPLOYEES RECORDED MORE THAN 77,000 ACTIONS
51BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
We are committed to ethical standards and responsible behaviour in everything we do.
Ethics and compliance
Our industry is among the most highly
regulated of any sector.
Our global Operational Framework sets
outour approach and the mandated
policies, processes and standards that
applyeverywhere we operate. Our Code of
Conduct and ‘Supplier Principles – Guidance
for Responsible Business’ (Supplier Principles)
outline expectations for all our employees
and partners.
Anti-corruption programme
Our customers, shareholders, partners and
colleagues expect the highest standards of
ethical conduct. We support our employees
in understanding the vital role they have to
play to conduct business in an ethical and
responsible way. We have a zero tolerance
policy regarding corruption in all its forms.
Our anti-corruption programme is designed
to identify, manage and mitigate corruption
risks and ensure we adhere to all relevant
legal and regulatory requirements
recognising the bribery and corruption
risksthe Group faces (see legal risk on page
65). Theprogramme provides our employees
with practical guidance, helps them to
understand what is expected of them and
creates an environment where they feel they
can confidently and, anonymously if needed,
ask questions and raise concerns.
Our ethics programme
Our global Code of Conduct lays out the
standards and behaviours that we expect
ofall employees. It guides us in acting
responsibly and ethically in everything we
doand outlines the ways in which anyone
can seek help and guidance. Our Code is
supported by a training and engagement
programme to empower people to make
ethical decisions. All of our employees are
required to complete live, manager-led
ethics training annually alongside e-learning
programmes of role-specific training, eg on
export controls.
We value openness and strive to create a
culture where people feel they can speak
upfreely.
Employees can raise a concern through
fourprimary channels: via our Ethics
Officers;by email; on the telephone; and
online reporting to our externally run Ethics
Helpline service. Our Ethics Helpline is also
open to third parties. Our Ethics Officers
receive training to equip them with the skills
to provide guidance to employees raising
aconcern.
During 2024, we received 1,722 reports,
reflecting a 12% increase globally from 2023.
The increase in contacts was primarily driven
by BAE Systems Inc., with a steady increase
seen in the UK and international businesses.
There is a direct correlation between the
Total ethics enquiries
1,2
2024 1,722
1,5312023
Anonymity rate
27%
(2023 25%)
2024 ethics enquiries by region
A
B
C
D
A US 927
B UK 713
C Kingdom of Saudi Arabia 50
D Australia 32
Number of ethics officers
2024 288
2452023
Code of Conduct training
99%
Dismissals for reasons relating tounethical
behaviour
1
2024 351
3002023
1. BAE Systems Internal Audit has reviewed the systems, processes and controls in place to collate,
validateandreport this data. Based on the procedures and the evidence obtained, nothing has come
toits attention that indicates the disclosures have not been properly prepared in accordance with
suchsystems, processes and controls.
2. Our US business uses the Helpline as a mechanism for people to declare a conflict of interest (eg a family
member also working at BAE Systems, or a second job) – these are not reports of inappropriate behaviour
orrequests for guidance, but a simple logging process.
How our Ethics Helpline has been used
How were concerns raised? What happened?
Concerns
raised
1,722
Helpline
625
Ethics Officer
909
Email
155
Other
33
Case to
answer
274
No case
toanswer
406
Still under
investigation
192
Investigations
872
Guidance
850
52 BAE Systems plc  Annual Report 2024
Responsible business
increase in number of reports and our
engagement activities delivered by the
ethics leads. Overall, the numbers of
reporters seeking guidance has decreased
with the substantiation rate of allegations
at41%.
In 2024, our anonymity rate was 27%
compared to 25% from 2023, remaining
below the global benchmark
1
rate of 56%.
53% of reports were made directly to
EthicsOfficers in 2024 – we encourage
thisroute for raising reports, as it allows
foran immediate response by someone
familiar with the local situation.
We interpret these metrics as positive
indicators of our employees showing trust
inthe business and in ‘speaking up’.
There has been an overall increase in
dismissals due to unethical behaviour in 2024,
though no specific trend has been identified.
Responsible supply chain
Our ambition is to be responsible across our
global business. Wecannot achieve this
alone, therefore it is important that we
collaborate and partner with suppliers to
make a positive business impact and the
steps we are taking are detailed below.
In 2024, we spent £15bn with 21,500
directlycontracted suppliers worldwide.
These relationships are often long-lasting
due tothe complexity of our products and
theirlong lifecycles, so it is critical that
oursuppliers share our values.
We communicate our expectations
aboutresponsible supply chain through
ourSupplierPrinciples which we share
withallour suppliers. Our Principles cover
supplierworkplace, labour standards,
employee business practices and wider
topics of focus.
During 2024, we undertook an annual
risk-based assurance activity to assess
oursuppliers’ adoption of our Principles
andto identify any areas that required
investigation and/or mitigation.
Wecompleted this assurance activity
withsuppliers representing more than
34%of our global spend.
Additionally, our standard terms and
conditions require suppliers to comply with
all applicable laws and regulations, including
those related to human rights, anti-slavery
and the environment.
Conflict minerals
We expect our suppliers to provide products
made from materials, including constituent
minerals that are sourced responsibly, and
tosupport efforts to eradicate the use of any
minerals which directly or indirectly finance or
benefit armed groups that are perpetrators
of serious human rights abuses.
UK Fair Payment Code
We are committed to paying our suppliers
promptly and in accordance with agreed
terms, and we were a signatory to the
UKPrompt Payment Code. The Prompt
Payment code ceased in December 2024,
inreadiness for the transition period to the
Fair Payment Code.
We will be applying the UK Fair Payment
Code in line with the UK Government’s
timetable. The Fair Payment Code requires
acommitment to the principles of being
clear, fair and collaborative with suppliers.
Adoption of appropriate payment practices
is of significant importance to us and ensuring
that we pay invoices on time is a key focus
forour UK businesses.
Human rights
We are committed to respecting human
rights wherever we operate, in the activities
that fall under thefull, direct control of the
Group. Our employees, our suppliers and
business partners are all expected to adopt
high standards. We are committed to
conducting business responsibly and
maintaining and improvingsystems and
processes to minimise the risk of slavery
andhuman trafficking in our business or
supply chain.
Our Human Rights Statement outlines our
approach to responsible business behaviour
in the activities that fall under the full, direct
control of the Group, including in relation
toanti-corruption and the environment,
aswell asour workplace, supply chain,
localcommunities and products.
Our Code of Conduct and other global
policies and processes mandated under
ourOperational Framework, together
withour supporting principles and guidance,
support our commitment to human rights,
and are regularly reviewed. Our Supplier
Principles communicate the human rights
principles we expect of our suppliers.
In the UK and Australia, we have modern
slavery working groups to progress actions
to review and strengthen how modern
slavery and human trafficking risk is identified,
assessed and managed across our business.
We publish our annual responses, including
workstreams and progress achieved during
the year, to the UK and Australian Modern
Slavery Acts, and a statement in response to
the California Transparency in Supply Chains
Act on our website.
Reporting, disclosure and assurance
We report on progress of our sustainability
agenda within our Annual Report and
online: baesystems.com/sustainability.
Sustainability reporting boundary
The reporting boundary for sustainability
information and data
2
, including our
investment in people and communities
andthe Responsible business section, covers
wholly and not wholly-owned subsidiaries,
but excludes equity accounted investments.
Data includes organisational changes made
in 2024.
Double materiality assessment
Sustainability is integrated into our
Groupstrategic framework (see page 12).
Tounderstand the sustainability issues that
are relevant for our business we engage
internal and external stakeholders, via
amateriality assessment which we plan
torun every three years.
This year we conducted our first double
materiality assessment to support our future
compliance with the EU Corporate
Sustainability Reporting Directive, required
from 2028. As part of this, we conducted
interviews with employees, trades unions,
suppliers, customers, investors, local interest
groups and non-governmental organisations,
as well as peer reviews and desk top research.
ADDITIONAL INFORMATION PAGE 225
Our approach to UN Sustainable
Development Goals
We continue to support the UN Sustainable
Development Goals (SDGs) and remain
committed to making progress on specific
goals that are aligned to our sustainability
agenda. The SDGs provide a framework for
development and addressing the challenges
that global populations face from climate
change and environmental risks through
tomanaging societal needs and building
economic growth.
FOR MORE INFORMATION PLEASE VISIT OUR WEBSITE
WWW.BAESYSTEMS.COM/EN/SUSTAINABILITY
Assurance of data
External assurance of GHG emissions
(page50), energy (page 51) and community
investment (page 28) data isprovided by
Deloitte LLP.
DELOITTE’S FULL UNQUALIFIED ASSURANCE OPINION,
INCLUDING DETAILS OF THE SELECTED METRICS ASSURED
WWW.BAESYSTEMS.COM/ANNUAL REPORT
1. Navex 2023 anonymity benchmark.
2. Includes safety data – page 27, gender diversity – page 27, community data – page 28, GHG emissions and
environment data pages 50–51, ethics data – pages 52–53, supply chain – above.
53BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
The ‘Our investment in people and communities’ and ‘Responsible business’ sections constitute the Non-financial and sustainability
information statement as required by the Companies Act 2006 as amended, together with the ‘Our stakeholders and work of the Board’,
‘Ourbusiness model’ and ‘Risk’ sections listedin the table below, which are incorporated in this Non-Financial and Sustainability Information
Statement by reference:
Non-financial and sustainability information statement
Topic Our principles, policies and standards that govern our approach Where to find information inthisreport
Environmental matters and
climate-related disclosures
– Climate Response and Environmental policy.
– Decarbonisation plan.
– Supplier Principles – Guidance for ResponsibleBusiness.
CLIMATE AND THE ENVIRONMENT PAGE 49
ADDRESSING CLIMATE RISKS (TCFD) PAGE 49
Employees
– People policy.
– Health and Safety policy.
– Communications policy.
– Code of Conduct.
– Personal Data Protection policy.
OUR STAKEHOLDERS AND
WORK OF THE BOARD PAGE 76
RESPONSIBLE BUSINESS PAGE 48
Respect for human rights
– Code of Conduct.
– Human Rights Statement.
– People policy.
– Product Trading policy.
– Modern Slavery Statement.
– Supplier Principles – Guidance for Responsible Business.
RESPONSIBLE BUSINESS PAGE 48
Social matters
– Community Investment policy.
– Commercial policy.
– Lobbying, Political Donations and Other PoliticalActivity policy.
– Dignity and Respect Standards, in support ofourglobal
workplaceculture vision.
– Supplier Principles – Guidance for ResponsibleBusiness.
OUR STAKEHOLDERS AND
WORK OF THE BOARD PAGE 76
RESPONSIBLE BUSINESS PAGE 48
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE COMMITTEE REPORT PAGE 91
Anti-bribery and corruption
– Gift and Hospitality policy.
– Finance policy.
– Conflicts of Interest policy.
– Facilitation Payments policy.
– Advisers policy.
– Fraud Prevention policy.
– Lobbying, Political Donations and Other Political Activity policy.
– Procurement policy.
– Supplier Principles – Guidance for Responsible Business.
RESPONSIBLE BUSINESS PAGE 48
Description of principal
risksrelating to topics
mentionedabove
– Risk Management policy.
HOW WE MANAGE RISK PAGE 55
Description of business model
OUR BUSINESS MODEL PAGE 10
Non-financial key
performanceindicators
KEY PERFORMANCE INDICATORS PAGE 14
All our policy summaries can be found on our website: baesystems.com/en/sustainability/governance/oversight/policy-summaries.
Section 172 statement
For the year ended 31 December 2024, in accordance with the requirements of Section 172(1) ofthe Companies Act 2006, the directors consider that they
have acted in good faith and in a manner most likely to promote the success of the Company for the benefit of its members as a whole, having regard to
stakeholders and other certain factors, including standards of business conduct and the impact of its operations on the environment and local communities.
MORE INFORMATION IN SUPPORT OF THIS STATEMENT, INCLUDING KEY MATTERS CONSIDERED AND DECISIONS MADE BY THE BOARD DURING 2024 PAGE 76
54 BAE Systems plc  Annual Report 2024
Responsible business
Effective management of risks is essential to the delivery of the Group’s strategic
objectives and the creation of sustainable shareholder value.
How we manage risk
Board
The Board has overall responsibility for
determining the nature and extent of
therisks the Group is willing to take, and
ensuring that risks are managed effectively
across the Group.
Risk is considered on a regular basis at Board
and Board committee meetings and the
Board reviews risk (including emerging risk)
as part of its business planning and annual
strategy review process. This provides the
Board with an appreciation of the key risks
within the business and oversight of how
they are being managed.
The Board delegates oversight of certain
riskmanagement activities to the Audit
andRisk Committee.
Audit and Risk Committee
The Audit and Risk Committee monitors
theGroup’s key risks identified by the risk
assessment processes and reports its
findings to the Board twice a year. To support
this activity, it receives insight on particular
risk-related matters from the other Board
sub-committees, including the Environmental,
Social and Governance and Remuneration
Committees. The Audit and Risk Committee
is also responsible for reviewing the
effectiveness of the Group’s risk management
and internal control framework.
Environmental, Social and
GovernanceCommittee
The Environmental, Social and Governance
Committee monitors the Group’s approach
to, and relevant policies on, climate resilience
and transition plans and the Group’s approach
to, and relevant policies on, workplace
environment, including health and safety.
Remuneration Committee
The Remuneration Committee aims to
achieve a balance between the reputational
andother risks from excessive reward and
the retention risk from below-market
remuneration, and ensures that behavioural
risks that can arise from target-based
incentive plans are identified and mitigated.
Approach
The Group’s Risk Management policy is set
out in the Operational Framework, the
Group’s detailed governance framework.
The Group’s approach to risk management
isaimed at the early identification of material
risks, mitigating the effect of those risks
before they occur and dealing with them
effectively if they crystallise.
The Group is committed to the protection
ofits assets, which include our people,
intellectual and physical property, and
financial resources, through an effective
riskmanagement process, underpinned
where appropriate by insurance.
Reporting within the Group is structured
sothat key issues are escalated through
themanagement team and ultimately
totheBoard where appropriate. The
underlying principles of the Group’s risk
management processes are that risks are
monitored continuously and associated
action plans reviewed, with this information
reported through established management
controlprocedures.
The Board has conducted a review of
theeffectiveness of the Group’s risk
management and internal control
framework, including material financial,
operational and compliance controls,
inaccordance with the UK Corporate
Governance Code. The Group’s system of
internal controls was in place throughout
2024 and to the date of this report.
As with any system of internal control, the
policies and processes that are mandated
inthe Operational Framework are designed
to manage rather than eliminate the risk of
failure to achieve business objectives and
canonly provide reasonable, and not
absolute, assurance against material
misstatement or loss.
Process
The responsibility for risk identification,
analysis, evaluation and mitigation rests
withthe line management of the sectors
andGroup functions. They are also
responsible for reporting and monitoring
keyrisks in accordance with established
policies and processes under the Group’s
Operational Framework.
The Group’s approach to risk management
isset out in the Risk Management policy,
amandated policy under the Operational
Framework. This policy details the process
tobe followed for Business Risks and
references the Lifecycle Management
Framework, a core business process under
the Operational Framework, for the
management of Project Risks.
Project Risks are recorded in risk registers
atthe project level and are reported and
monitored in Project Performance Review
Packs (PPRP), which are regularly reviewed
by management. The financial performance
of projects is reported and monitored using
Contract Status Reports, which form part
ofthe PPRP. These include programme
margin metrics, which are reviewed regularly
by the Executive Committee and Board.
Project margin is recognised after making
suitable allowances for technical and other
risks related to performance milestones yet
to be achieved.
55
BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
How we manage risk continued
For Business Risk, the businesses and
Groupfunctions maintain detailed risk
registers containing the risks that have
beenidentified, characteristics of the risk
and the mitigation strategy for the risk,
including the internal controls in operation.
Each risk is allocated an owner who has
authority and responsibility for its
assessment and management. The more
significant risks identified by the businesses
and Group functions are reported and
reviewed at the Quarterly Business Review
and the Chief Executive’s Business Review,
which are both core business processes
mandated by the Operational Framework.
The businesses and Group functions
undertake a formal refresh of their Business
Risks annually. This provides a topical set
ofrisks which, together with insight from
senior management, are collated to report
the Group’s most significant risks to the
Executive Committee. Management
responsibility for these risks is then
determined by the Executive Committee.
These significant risks, and their
corresponding mitigation plans, are kept
under review by the Executive Committee.
Theyare reported to the Board and form
thebasis of the Board’s assessment of
theGroup’s Principal Risks.
Principal and emerging risks
The Board has carried out a robust
assessment of the principal and emerging
risks facing the Group.
Principal risks include those that would
threaten the Group’s business model, future
performance, solvency, liquidity or reputation.
Risks have been identified as principal based
on the likelihood of occurrence, the potential
impact on the Group and the timescale over
which they might occur. A description of the
principal risks and their potential impact,
together with details of how they are being
mitigated, can be found on pages 58 to 65.
Risks can develop and evolve over time and
their potential likelihood and impact may
vary over time in response to events. These
may include emerging risks, which are
considered through the above-mentioned
existing processes, and through the Group’s
business planning and annual strategy
review process.
For 2024, it has been determined that
‘Pension funding’ is no longer a principal risk.
The latest triennial valuations of the Group’s
UK defined benefit pension schemes
confirmed that there is no funding deficit
ona technical provisions basis. Whilst there
isalways the possibility that the funding
position on these schemes may deteriorate,
the Group believes that, as a result of various
de-risking initiatives, the likelihood of a
material funding deficit is highly unlikely.
The scope of the 2023 principal risk entitled
‘Cyber security’ (as described on page 73 of
the 2023 Annual Report) has been renamed
‘Security (including cyber security)’ and
extended to cover certain physical security
risk aspects in addition to cyber security.
TheBoard considers this to be a better
reflection of the evolving security threats
theGroup faces.
A principal risk entitled ‘Business interruption’
was introduced in 2024 and covers material
business interruption events including
(among other things) disruption caused
byextreme weather, flooding and other
natural disasters and public health crises.
Asa result of this change: (i) the scope of
the‘Climate change and environmental
factors’ risk is now focused on risks caused
by environmental regulatory change and
those associated with the transition to a
lowcarbon economy; and (ii) the risk
entitled‘Outbreak of contagious diseases’
(as described on page 77 of the 2023 Annual
Report) has been deleted on the basis that a
pandemic or epidemic is one of many events
that might lead to a business interruption
and need not be considered separately.
OUR PRINCIPAL RISKS PAGE 58
56 BAE Systems plc  Annual Report 2024
Risk
Our risk management framework
SEE THE GROUP’S OPERATIONAL FRAMEWORK FOR DEFINITIONS OF POLICIES, PROCESSES AND REVIEWS PAGE 75
Board
Overall responsibility for risk management
Chief Executive’s Business Review
Quarterly top-level review of the key operational, financial and non-financial performance issues
withinthebusinessandsignificantforthcoming bids and events
Quarterly Business Review
Quarterly management review of the performance of each of the Group’s businesses
against their objectives, measures and milestones
Integrated Business Plan
Annual long-term strategy review and five-year plan for each business
Risk challenge,
monitoringand reporting
Core Business Processes
Assurance Review Board
Assurance of the Business and Project Risk management processes as mandated in the Operational Framework
Audit and Risk Committee
Monitors key risks and reviews effectiveness of the risk management and internal control framework
Executive Committee
Reviews the Business Risk Registers to determine the Group’s key risks
Strategic objectives and shareholder value
Project objectives and financial return
Project Risk
Lifecycle Management Framework
(Core Business Process)
Operational Assurance Statement
Six-monthly management self-assessment of compliance with the Operational Framework
(Mandated Process)
Business Risk
Risk Management policy
(mandated policy)
Identification
Risks recorded in
risk registers
Mitigation
Risk owners identified and action plans
implemented. Robust mitigation strategy
subject to regular and rigorous review
Analysis
Risks analysed for impact
and probability to determine
exposure
Evaluation
Risk exposure reviewed
and risks prioritised
57BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Risks are identified based on the likelihood of occurrence,
thepotential impact on the Group and the timescale over
which they might occur. The Group’s principal risks are
identified below together with a description of how each
riskis mitigated. The risks estimated as more significant
tothe Group (as at the date of this Strategic Report) are
placed at the top end of the list.
Our principal risks
 KEY LINKS TO STRATEGY
1
Sustain and grow our defence business
2
Continue to grow our business in adjacent markets
3
Develop and expand our international business
4
Inspire and develop a diverse workforce to drive success
5
Enhance financial performance and deliver sustainable
growth in shareholder value
6
Advance and integrate our sustainability agenda
OUR STRATEGIC FRAMEWORK PAGE 12
Government customers, defence spending and terms of trade
The Group’s largest customers are governments. The Group is dependent on government
defence spending and the timing and terms of trade of government contracts.
 KEY LINKS TO STRATEGY
1
 
2
 
3
 
4
 
5
 
6
Description Impact Mitigation
In 2024, 96% of the Group’s sales were defence
related.
Levels of defence spending by governments
aredifficult to predict and can fluctuate depending
onchange of government policy, other political
considerations, budgetary constraints, specific threats
to national security and macroeconomic conditions.
From time to time, there have been constraints
ongovernment expenditure in a number of the
Group’s principal markets.
The recent changes to the political landscape in
certain of the Group’s principal markets has given
riseto additional uncertainty over defence budget
levels and spend priorities.
Lower defence spending by the Group’s
major customers could have a material
adverse effect on the Group’s business,
results of operations, financial condition
andprospects.
The business is geographically spread across the
US,UK and international defence markets.
The Group’s diverse product and services portfolio
is marketed across a range of defence markets.
Many of the countries in which the Group operates
have announced increases or are making plans to
increase spending to address the elevated threat
environment. Whilst governments face global
economic and fiscal pressures, the commitment to
defence in the Group’s major markets remains robust.
In particular, the Group’s principal markets – the
UK,US, the Kingdom of Saudi Arabia and Australia
– have a significant and sustained commitment
todefence and security notwithstanding the recent
political landscape changes. See ‘Our markets’
onpage 18 of this Annual Report.
The Group benefits from a large order backlog, with
established positions on long-term programmes in
its principal markets.
The Group has long-standing relationships and
security arrangements with a number of its
government customers, including its four largest
customers, the governments of the US, UK, Kingdom
of Saudi Arabia and Australia, and their agencies
(whorepresented, as at 31 December 2024, 71%
ofthe Group’s revenue). It is important that these
relationships and arrangements are maintained.
In the defence and security industries, governments
can typically modify contracts for their convenience
orterminate them at short notice. Furthermore,
governments from time to time review their terms
oftrade and underlying policies and seek to impose
such new terms and policies when entering into new
contracts. Most long-term US Government contracts,
for example, are funded annually or incrementally and
are subject to cancellation if funding appropriations
for subsequent periods are not made.
Further, certain of the Group’s contracts with
government customers are subject to financial
auditsand other reviews, which can result in
adjustments to prices and costs.
Deterioration in the Group’s principal
government relationships resulting in
thefailure to obtain planned contracts or
expected funding appropriations, adverse
changes in the terms of its arrangements
withthose customers or their agencies,
orthetermination of contracts could have
amaterial adverse effect on the Group’s
business, results of operations, financial
condition and prospects.
The Group has established strong and enduring
relationships in its principal markets and is recognised
as playing a key role in the industrial capability of
each of the countries in which it operates.
Government customers have sophisticated
procurement and security organisations with which
the Group has long-standing relationships with
well-established and understood terms of business.
In the event of a customer terminating a contract
for convenience, the Group would typically be paid
for work done and commitments made at the time
of termination.
Where contracts are subject to financial audits,
which may lead to price or cost adjustments, the
Group has established processes to ensure costs
estimated and/or incurred on contracts are
considered allowable under the applicable law
andregulation. This approach aims to minimise
therisk of detrimental price or cost adjustments.
The Group’s profits and cash flows are dependent,
toa significant extent, on the receipt and timing
ofthe award of defence contracts and the profile
ofcash receipts thereunder.
Amounts receivable under the Group’s
defence contracts can be substantial and,
therefore, the timing of, or failure to receive,
awards and associated cash advances and
milestone payments could materially impact
the Group’s profits and cash flows for the
periods affected, thereby reducing cash
available to meet the Group’s capital
allocation priorities, potentially resulting in
the need to draw on external funding and
impacting its investment grade credit rating.
This in turn could have a material adverse
effect on the Group’s business, results of
operations, financial condition and prospects.
The Group’s balance sheet continues to be managed
in line with its policy to retain an investment grade
credit rating and to ensure operational flexibility.
The Group monitors a rolling forecast of its
liquidityrequirements to ensure that there is
sufficient access to cash to meet its operational
needs and maintain adequate headroom.
58 BAE Systems plc  Annual Report 2024
Risk
Contract risk, execution and supply chain
The Group has many contracts, including a number of large contracts and fixed-price
contracts, and is dependent upon the delivery of services, component availability,
subcontractor performance and key suppliers.
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Description Impact Mitigation
As a major defence, aerospace and security
company, the Group executes long-term
high-value contracts for the provision of complex,
strategically important products and services for
its customers. For example, in 2024, 50% of the
Group’s sales were generated by its 18 largest
programmes and, as at 31 December 2024, the
Group had 11 programmes with an order backlog
in excess of £1bn.
It is important that the Group delivers on its
projects within tight tolerances of quality, time
and cost performance in a reliable, predictable
and repeatable manner.
A significant portion of the Group’s revenue is
derived from fixed-price contracts. Assumptions
used to estimate projected costs, including those
on future rates of inflation, upon which fixed
prices are agreed may prove to be inaccurate and,
since these contracts can extend over many years,
there is a risk that actual costs may significantly
exceed projected costs.
A failure by the Group to anticipate technical
problems or deliver on its contractual commitments
could result in (among other things) the loss,
expiration, suspension, cancellation or termination
of one or more of its large contracts, which could
have a material adverse effect on the Group’s
business, results of operations, financial condition,
prospects or reputation.
A failure to estimate accurately and control costs
on fixed-price contracts could have a material
adverse effect on the Group’s business, results of
operations, financial condition and prospects.
All of the Group’s major programmes are
managed under the Group’s mandated Lifecycle
Management process, the objective of which is
tomanage contract performance and deliver
acceptable contract outcomes. In particular, the
Lifecycle Management process includes the
management of contract-related risks.
Further, the Group has a well-balanced spread
ofprogrammes and a significant defence order
backlog, which provides portfolio resiliency and
forward visibility.
Estimating, bid preparation and approvals processes
are well established throughout the Group, with
decisions required to be taken at the appropriate
level in line with clear delegations of authority.
Risks inherent in prospective contracts are considered
carefully as part of these processes to ensure that
proposed contract terms are commensurate with
such risks. In particular, the Group recognises that
fixed price design and development contracts are
generally more risk intensive than other contract
types and, as a result, the Group has limited
exposure to such contracts.
A significant proportion of the Group’s largest and
most complex contracts are with the UK Ministry
of Defence. In the UK, development programmes
are normally contracted with appropriate levels
ofrisk being initially held by the customer.
A leadership development programme for project
leadership is in place across the Group, covering
the leadership competencies required to manage
complex projects containing significant levels of
risk and uncertainty.
The Group is dependent on the delivery ofservices
and materials by suppliers and theassembly of
components and subsystems bysubcontractors
used in its products in a timelyand satisfactory
manner, on appropriate commercial terms
andinfull compliance with applicable terms
andconditions.
This can be exacerbated where the Group is
dependent on either one or a limited number
ofsuppliers.
Some of the Group’s suppliers or subcontractors
may be impacted by economic factors (such as
inflationary pressures and material shortages),
bankruptcy or financial difficulties and other
business continuity events, which could impair
their ability to meet their obligations to the Group
and to supply on appropriate commercial terms.
A failure by one or more of the Group’s suppliers
to provide the agreed-upon materials, components
or products or perform the agreed-upon services,
on a timely basis, at the agreed price, according to
specifications (including compliance with regulatory
requirements) or at all may adversely affect the
Group’s ability to perform its obligations, result
inadditional costs or delays, require the Group
totransition work to other companies (resulting
infurther additional costs and delay) and/or
resultin penalties under, or the termination
of,customer contracts.
This impact is heightened where a supplier
isasolesupplier or one of a small number
ofqualified suppliers.
Additionally, the Group could be adversely
affected by actions, or issues experienced by,
theGroup’s suppliers which are outside its
control(such as misconduct and reputational
issues), which could subject the Group to
liabilityor adversely affect its ability to
competeforcontracts.
Any of the foregoing could have a material
adverse effect on the Group’s business, results
ofoperations, financial condition, prospects
andreputation.
The Group’s supply chain function establishes
andmanages enduring end-to-end integrated
supplier arrangements, in partnership with the
programmes it supports.
Supply chain management starts with the Group’s
Global Procurement policy, which defines the
requirements to be implemented by each of the
Group’s sectors for the establishment of procurement
controls and the management of supplier-related
risk to a minimum set of standards.
Where the Group has long-term programmes in
place, it seeks to leverage the benefit of a more
stable forward visibility of long-lead requirements
to allow the Group to better manage supplier
deliverables against programme requirements.
Risk-based due diligence, for both new and existing
suppliers, is carried out with reference to a range
of financial and non-financial factors. Third-party
toolsets are used to support compliance and risk
assessments as part of these due diligence checks.
The Group’s supply chain function holds regular
regional and global supply chain risk and
disruption reviews to ensure that the latest risk
data is appropriately shared and to identify
emerging risks through horizon scanning.
The Group seeks to manage its supplier cost
inflation risk through contracting arrangements,
supplier cost management activity, long-term
supplier agreements and leverage of
categoryvolumes.
59BAE Systems plc  Annual Report 2024
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Our principal risks continued
Security (including cyber security)
The Group could be negatively impacted by cyber and physical security threats or other
security-related disruptions.
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Description Impact Mitigation
As a major defence, aerospace and security
company, the Group faces significant risks in
respect of its information security, continuity
ofoperations, integrity of its products and
physicalsecurity. These threats are continuous
andevolving, and are posed by organisations
witha broad range of capability, from criminals
tonation states.
Threats include attempts to gain unauthorised
access to the Group’s and customers’ protected
information and personal data in order to
compromise the integrity, confidentiality and/or
availability of that data (in some cases potentially
compromising the products to which it relates);
attempts to disrupt business operations through
the sabotage of the Group facilities, networks and
other assets; threats to the safety of employees;
and threats to the Group’s supply chain and
partners (including joint ventures and joint
venture partners).
These threats can manifest through cyber, human
and/or physical means and directly or indirectly via
the supply chain.
The continuing war in Ukraine has increased
anumber of risks to Ukraine’s allies and their
defence industries. Furthermore, any military
conflict, which generates public interest or
concern, can increase the risk of protest and
operational disruption to the Group’s facilities.
Whilst the impact of any such threats and/or
disruption is difficult to predict, it could lead to
(among other things): (a) production downtimes;
(b) operational delays; (c) other detrimental
impacts to the Group’s operations or ability
toprovide products and services to customers;
(d)the compromise, misappropriation, destruction
or corruption of the Group’s data or intellectual
property and that held or generated by the Group
on behalf of its customers, suppliers and partners;
(e) other manipulation or improper use of the
Group’s or third-party systems, networks or
products (eg disabling or denying their use and/or
altering their performance characteristics); (f)
diversion of management’s attention and
resources; and/or (g) financial losses from remedial
actions, loss of business, or potential liability,
penalties, fines and/or damages.
Furthermore, as part of its Cyber & Intelligence
sector, the Group provides systems, products and
services to various customers who also face cyber
threats. These systems, products and services
could themselves be compromised, may not be
able to detect or deter threats, or effectively
mitigate resulting losses, which could adversely
affect the Group’s customers and therefore result
in financial losses from remedial actions, loss of
business, or potential liability and/or damages.
Inaddition, a failure by the Group to prevent
ormitigate cyber-attacks that impact the
Groupcould have a detrimental impact on
thereputation and/or performance of the
Cyber&Intelligence sector.
Any of these impacts could have a material
adverse effect on the Group’s business, results
ofoperations, financial condition, prospects
andreputation.
The Board and senior management regularly
consider security risk. These senior level reviews
cover evolving threats, the Group’s planned
responses and the effectiveness of security
controls and security investments in meeting
intended objectives. Security risk is also reviewed
at a functional and operating business level.
The Group’s internal Cyber Security Standards are
aligned to the National Institute of Standards and
Technology framework. A formal, three layers of
defence assurance programme, which is reviewed
both internally and externally, is operated to
checkadherence to these standards and customer
requirements. Additionally, resulting from the
need to comply with government customer
requirements, certain of the Group’s IT networks
are formally accredited by those customers.
Education and awareness to embed a strong
security culture across the Group is a vital part
ofits preventative activities. Employees are
required to complete mandatory training which
(depending on role) covers cyber security, physical
and personal security, document marking, security
of export-controlled information and personal
data protection. As many cyber-attacks involve
email, the Group runs a programme of phishing
exercises for all email users across the enterprise.
To increase the Group’s resilience against security
threats, the Group performs protective monitoring
of activity on the Group’s core networks via the
Group’s Security Operations Centres, maintains
incident response and crisis management plans
with updates following regular test exercises and
obtains threat intelligence to the Group, utilising
its internal security capabilities and from external
partners including governments.
To address the heightened risk to the security of
the Group’s personnel, additional communications
and advice are provided to all employees on
personal safety precautions.
To mitigate the cyber security risk posed by
working with suppliers, the Group performs
risk-based due diligence and assurance and
(where relevant) seeks to require suppliers
tocomply with cyber security-related
contractualprovisions.
In addition to the above, the Group purchases
cyber and property insurance, however, as with
allinsurance, it does not provide full cover
againstall potential loss scenarios.
60 BAE Systems plc  Annual Report 2024
Risk
International markets
The Group operates in international markets.
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Description Impact Mitigation
The Group is an international company conducting
business in a number of regions, including the US,
Australia and the Middle East, as well as in the UK.
International sales and operations are sensitive
to(among other things): social and political
changes impacting the business environment;
economic downturns and inflation; political
instability, armed conflict and civil disturbances;
the imposition of capital controls; the introduction
of burdensome taxes or tariffs; changes to export
control, tax and other government policy and
regulations in the UK, US and all other relevant
jurisdictions; and the inability to obtain or
maintainthe necessary export licences and
othertrade restrictions.
Any of these factors could have a
material adverse effect on the Group’s
business, results of operations, financial
condition and prospects.
The Group has a balanced portfolio of businesses across
anumber of markets internationally. The Group benefits
from a large order backlog, with established positions on
long-term programmes in the US, UK, the Kingdom of
SaudiArabia and Australia.
The Group’s contracts are often long term in nature and,
consequently, it may be able to mitigate these risks over
theterm of those contracts.
Whilst some of the Group’s contracts are on a government-
to-government basis, for contracts which are not
government-to-government, political risk insurance is held
where considered appropriate with regard to the level of
risk involved. However, as with all insurance, it does not
provide full cover against all potential loss scenarios.
The Group has a well-established legal and regulatory
compliance structure aimed at ensuring adherence to legal
and regulatory requirements and identifying restrictions
that could adversely impact the Group’s activities, including
export control requirements.
Given the international nature of its business,
theGroup is exposed to volatility arising from
movements in currency exchange rates,
particularly in respect of the US dollar, euro,
Saudiriyal and Australian dollar.
Significant fluctuations in exchange rates
to which the Group is exposed could
cause volatility in its financial results
reported in pounds sterling and could
have a material adverse effect on the
Group’s business, results of operations,
financial condition and prospects.
The Group’s policy is to hedge all material firm transactional
currency exchange rate exposures. Control processes are in
place to ensure adherence to this policy.
The international markets in which the Group
operates are highly competitive and the Group’s
business depends upon its ability to win and
contract for high-quality new programmes in
these markets.
The Group’s competitors may also develop new
technologies or offerings, novel support models
ormore efficient ways to produce existing
products that could cause the Group’s existing
products or services to become obsolete or
thatcould gain market acceptance before the
Group’s own products or services.
If the Group is unable to compete
adequately and/or obtain new business
in the international markets in which
itoperates, there may be a material
adverse effect on its business, results
ofoperations, financial condition
andprospects.
The Group has an international, multi-market presence,
abroad portfolio of products and services, leading
capabilities and a track record of delivery on its
commitments to its customers.
To remain competitive, the Group continues to invest
inboth research and development and its systems and
processes; seek cost base reductions; and improve efficiency.
UK and US Government support is often provided to the
Group in relation to a number of its business opportunities
in export markets.
In the UK, export contracts can be structured on a
government-to-government basis and government support
can also involve military training, ministerial support for
promotional activities and financial support through UK
Export Finance. In the US, most of the Group’s defence
export sales are delivered through the Foreign Military Sales
process, under which the importing government contracts
with the US Government.
People
The Group needs to attract and retain suitably qualified people across
allofitsoperations.
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Description Impact Mitigation
Delivery of the Group’s strategy is dependent
onits ability to recruit and retain people with
appropriate talent and skills, including those
withinnovative technological capabilities.
The Group may be unable to attract and retain
suitably experienced senior executives to provide
the necessary leadership and direction in a
complex and dynamic environment.
Competition for suitably qualified and experienced
people is high both in the defence sector and in
other technology-centred businesses. Further,
competition is intensified by nationality and
regulatory restrictions (including the requirement
for security clearances for certain roles) and can be
exacerbated by macroeconomic, industry and
labour market conditions more generally.
The Group’s long-term defence
programmes benefit from continuity of
leadership, and the loss of key employees
or inability to attract the appropriate
people on a timely basis could adversely
impact the Group’s ability to deliver its
strategy, meet its business plan and
deliver on its contractual commitments,
which accordingly could have a material
adverse effect on the Group’s business,
results of operations, financial condition
and prospects.
The Group recognises that its employees are key to
delivering its strategy, business plan and contractual
commitments. Accordingly, senior management proactively
considers the Group’s current and future workforce
requirements in terms of both capabilities and staffing
volumes and seeks to develop the existing workforce and
hire talented people to meet those requirements.
In particular, the Group has well-established graduate
andapprenticeship programmes, structured attraction,
recruitment and retention processes and an effective
through-career capability development programme.
The Group’s remuneration policies and levels, including
those for its senior executives, are regularly reviewed to
ensure they remain fit for purpose.
In order to seek to maximise its talent pool, the Group
iscommitted to creating an inclusive environment for
itsemployees.
61BAE Systems plc  Annual Report 2024
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Our principal risks continued
Safety
Employees work with hazardous materials and in challenging locations and the Group’s
products and services, and those of its customers or suppliers, inherently pose a safety risk.
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Description Impact Mitigation
The nature of the Group’s business means that
anumber of employees work in challenging
locations, perform high-risk activities and
handlehazardous materials.
Furthermore, many of the activities that the
Groupundertakes are in high-hazard industries
with inherent risk of harm, such as heavy
industrialproduction including shipbuilding.
The risks associated with the Group’s activities
andworking environments can cause harm to
itspeople and those affected by its operations.
There could be significant impacts if the
Groupfails to meet the necessary standards
toadequately mitigate against health and
safetyrisks, which could potentially lead to
injuryor death.
The Group may face criminal and civil prosecution
in connection with health and safety incidents,
which could result in substantial penalties and
fines. Furthermore, the Group could be
preventedfrom operating, due to employees
being unavailable for work, investigations being
conducted or if a regulatory approval or
certification is withdrawn, potentially leading
tocontractual penalties due to loss of productivity
or inability to deliver on contractual commitments.
Moreover, a failure to maintain a safe working
environment could have a detrimental impact on
the Group’s reputation, leading customers, suppliers
and employees (both current and potential) to be
disinclined to work with/for the Group.
Any of these factors could have a material adverse
effect on the Group’s business, results of operations,
financial condition, prospects and reputation.
Safety of the Group’s personnel, contractor
personnel and the wider communities in which
the Group operates is a primary concern. The
Group proactively monitors its safety performance
through leading and lagging indicators and
regular operating business reviews.
Safety performance is led at an Executive
Committee level by the ESG, Culture and Business
Transformation Director and is regularly reported
to both the Environmental, Social and Governance
Committee and the Board. Accountability for
safety performance at a business level rests with
the relevant Managing Director, who is responsible
forensuring compliance with the Group’s Safety,
Health and Environmental management systems
and the Operational Framework.
At a user level, every employee is required
tocomplete preventative safety training that
isboth Company-wide and job role-specific,
andissupported by dedicated health and
safetyprofessionals.
The Group has implemented recognised safety risk
assessment processes that are task specific and
seek to ensure hazards are identified, classified and
mitigated against prior to activities taking place.
Where appropriate, safety management systems
are externally accredited to internationally
recognised standards (eg ISO 45001).
In addition to the above, the Group continues to
evolve and improve its health and safety practices;
liaise across industry; and learn from safety-related
failures in adjacent industries.
The Group designs, develops, manufactures
andmaintains highly complex and specialised
products and services. By their very nature,
manyof the Group’s products and services are
hazardous and technical, mechanical and other
failures may occur from time to time, whether
asaresult of a manufacturing or design defect,
ineffective maintenance, incorrect usage, poorly
executed integration with a third party’s
productsor services or through some other cause.
In addition, the safety of the Group’s products
could be compromised as a result of cyber-attacks,
such as those that seize control and result in
misuse or unintended use of the Group’s products,
or other intentional acts.
The impact of a catastrophic product, service or
system failure or similar safety incident affecting
the Group’s, its customers’ or its suppliers’
products or services could be significant and
couldresult in injuries or death, property damage,
loss of strategic capabilities, loss of intellectual
property, environmental harm, reputational
damage or other significant effects.
It could also lead to a loss of equipment, product
recalls and product liability and warranty claims,
other service, repair and maintenance costs,
significant damages and other costs (including
fines and other remedies), regulatory and
environmental liabilities and a reduction in
demand for the Group’s products and services.
Any of the foregoing could have a material
adverse effect on the Group’s business, results
ofoperations, financial condition, prospects
andreputation.
The Group recognises it is vitally important to
work with its customers, suppliers and partners
toensure its products continue to work safely,
securely and with integrity, within their intended
operational environments.
Each of the Group’s businesses is required to
identify suitably qualified and experienced
individuals with clear accountabilities for ongoing
review of the application and effectiveness of the
business’s Product Safety Management System
and certification of the products developed or
traded by the business.
Businesses work with customers to agree the level
of safety that is required for each product, seeking
the highest reasonably practicable level of safety.
The Group assures the development and
production of safe products through reviews by
in-house subject matter experts and external
regulatory agencies.
Given the potential impact of sub-standard
product security upon product safety performance,
the Group applies product cyber security
standards that meet or exceed contracted
customer requirements.
In addition to the above, the Group continues to
communicate product safety-related information
across the Group via regular bulletins; evolve and
improve product safety practices; liaise across
industry and its government customers to develop
new product safety-related standards; and learn
from safety-related failures in adjacent industries.
62 BAE Systems plc  Annual Report 2024
Risk
Acquisitions
The anticipated benefits from acquisitions may not be achieved.
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Description Impact Mitigation
The Group considers investment in value-enhancing
acquisitions where market conditions are right
and where they progress its strategy.
There are a number of risks and uncertainties
whichmay arise in these transactions, including
(butnot limited to): the risks involved in entering
new markets; the difficulty in integrating
newlyacquired businesses into the
Group;thepotential for governments or
regulatory authorities to deny the proposed
transactions, ortoimpose on those transactions
conditions that undermine the business case for
those transactions; diversion of management’s
attention and resources; unidentified issues not
discovered indue diligence; the performance of
underlying products, capabilities or technologies;
andfailure of the acquired businesses to perform
inline with expectations.
Any of these factors could have a material
adverseeffect on the Group’s business, results
ofoperations, financial condition and prospects.
Inparticular, the potential for an impairment
ofgoodwill and other assets could arise.
The Group has established policies and
proceduresto conduct due diligence, manage
theacquisition process, monitor the integration
and performance of acquired businesses and
identify potential impairments.
Approval of acquisition transactions is made at
theappropriate level in the Group in accordance
with well-defined delegations of authority.
Business interruption
The Group could be negatively impacted by a range of events outside its control,
includingphysical risks arising from natural disasters.
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Description Impact Mitigation
The Group’s operations (as well as those of its
suppliers, subcontractors and customers) could be
disrupted by a range of events, including (among
other things) extreme weather, flooding and other
natural disasters (which could increase in severity
or frequency given the impact of climate change);
public health crises (such as pandemics and
epidemics); civil unrest, terrorism and other similar
events; industrial action; and a fire incident or
other incidents giving rise to damage to facilities.
Whilst the impact of any disruption caused by
these events is difficult to predict, it could lead to
(among other things): (a) production downtimes;
(b) operational delays; (c) other detrimental
impacts to the Group’s operations or ability to
provide products and services to customers;
(d)diversion of management’s attention and
resources; and/or (e) financial losses from
remedialactions, loss of business, or potential
liability, penalties, fines and/or damages.
Any of the foregoing could have a material
adverseeffect on the Group’s business, results
ofoperations, financial condition, prospects
andreputation.
The Group uses analytical tools to apply natural
catastrophe classifications to its sites worldwide.
This has informed its strategy as to where to
targeta programme of specific flood, windstorm
and earthquake assessments of the Group’s sites
and implement the subsequent risk reduction
recommendations. This analysis takes into account
the impact of climate change on the frequency
and severity of natural catastrophe events.
The Group maintains incident response and crisis
management plans covering a wide range of
incident types with updates following regular
testexercises.
The Group seeks to maintain constructive relations
with its various trades unions, which represent
employees within the Group.
The Group’s experience in dealing with the
COVID-19 pandemic between 2020 and 2022 will
assist it in dealing with any further outbreaks of
contagious diseases. This includes the establishment
of safe working practices, the effective use of
home working and working collaboratively with
government customers to maintain critical
defence and security programmes.
In addition to the above, the Group maintains
property insurance cover which includes property
damage and business interruption; however, as
with all insurance, it does not provide full cover
against all potential loss scenarios.
63BAE Systems plc  Annual Report 2024
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Our principal risks continued
Climate transition and environmental factors
The Group may be impacted by environmental factors, including those relating
toclimatechange.
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Description Impact Mitigation
The Group is subject to comprehensive
environmental laws, regulations and permitting
requirements in each of the countries in which it
operates, including those relating to the impacts
of climate change. Such laws and regulations
impose standards with respect to air emissions,
wastewater discharges, the use, handling and
storage of hazardous materials and waste,
remediation of soil and groundwater contamination
and the prevention of pollution. Increasingly,
environmental legislation is seeking to encourage
a reduction in GHG emissions. These laws,
regulations and/or permitting requirements may
be interpreted in different ways, conflict and/or
change from time to time (asmay any related
interpretations and guidance).
In addition, the Group may be impacted by climate
change transition risks resulting from the process
of adjusting to a low carbon economy. Associated
with this are potential risks around (a) the Group’s
ability to attract and retain future talent; (b) the
technology evolution and innovation required
torespond to future customer lower-emissions
requirements; (c) energy-related taxes; and
(d)theincreased costs of compliance with
energy-related schemes.
The physical risks associated with or arising
fromclimate change are covered in ‘Business
interruption’ above.
Environmental factors, including those relating
toclimate change, have the potential to materially
impact the Group’s business and operations.
Increasing changes in environmental laws and
regulations can expose the Group to increasing
unplanned capital and operating costs associated
with compliance, remediation and protection
ofthe environment. Breaches of these laws
andregulations can result in substantial costs,
including fines, penalties or other sanctions,
investigations and clean-up costs, and third-party
claims for property damage or personal injury
aswell as the termination of permits.
The shift to a low carbon economy has the
potential to increase the cost of business if the
Group cannot secure renewable energy contracts
or switch to low carbon alternatives for heating
ata reasonable cost.
Failure to decarbonise products and services
anddevelop products to operate in increasingly
diverse environmental conditions could have a
material adverse effect on the Group’s business,
results of operations, prospects and reputation.
The Group has set itself the target of achieving
near-term GHG emissions reductions across its
operations (Scope 1 and 2) by 2030 and working
towards reducing the GHG emissions of its value
chain by 2050.
The primary planned activities to meet the 2030
target include the establishment of a renewable
energy strategy; and optimising and reducing
energy consumption via site consolidation, new
builds and refurbishments, energy efficiency
projects and low carbon alternatives to heating
buildings.
The Group also seeks to monitor and manage
widerenvironment impacts through environmental
stewardship and responsible consumption of
resources. As part of this work, the Group
undertakes surveys and assessments to better
evaluate how its facilities and operations impact
the surrounding natural habitat.
With respect to reducing the GHG emissions
ofitsvalue chain by 2050, the Group continues
toprogress programmes of work to understand
theGHG emissions profile of its material products;
further progress the energy efficiency of the
Group’s products; research and develop alternative
solutions; and identify how the Group can support
customer capability requirements, while having
due regard for environmental considerations.
64 BAE Systems plc  Annual Report 2024
Risk
Legal risk
The Group is subject to risk from a failure to comply with applicable laws and regulations
orcontractual requirements.
 KEY LINKS TO STRATEGY
1
 
2
 
3
 
4
 
5
 
6
Description Impact Mitigation
The Group operates in a complex and highly
regulated environment, across many jurisdictions
and is therefore subject to a variety of legal,
regulatory and litigation risks.
These risks relate to (among other things) trade
controls, failure to protect and manage intellectual
property and/or assert and defend intellectual
property rights, data protection and security,
contract-related claims, taxes, climate-related and
environmental matters, sanctions, product safety
and reliability, health and safety, employment
matters, competition laws and laws governing
improper business practices (such as money
laundering, false accounting, anti-bribery and
corruption, andanti-boycott laws). Furthermore,
laws, regulations and contractual requirements
may beinterpreted in different ways, conflict and/
or change from time to time (as may any related
interpretations and guidance).
For example, export restrictions could become
more stringent and political factors or changing
international circumstances could result in the
Group being unable to obtain or maintain
necessary export licences.
Changes in laws and regulations (or the
interpretation thereof) could result in higher
compliance costs and impact customer or
suppliercontracts. Uncertainty relating to laws
and regulations may also affect how the Group
conducts its business and could limit its ability
toenforce its rights.
A breach of applicable legislation and/or
regulations by the Group, its employees, sales
representatives, marketing advisers or others
working on its behalf could result in significant
fines, penalties or other damages and/or the
suspension or debarment of the Group from
government contracts or the suspension of the
Group’s export privileges.
If customers or other third parties were harmed
bythe conduct of members of the Group, this
mayalso give rise to legal proceedings, including
class actions. Other legal disputes may also arise
between members of the Group and third
partiesrelating to matters such as breaches or
enforcement of legal rights or interpretation or
fulfilment of obligations arising under contracts,
statutes or common law. Adverse findings in any
such matters may result in remedial actions, loss
ofbusiness, penalties and/or damages or may
result in rights not being enforced or not being
enforced in the manner intended or desired.
Any of the foregoing could have a material
adverse effect on the Group’s business, results
ofoperations, financial condition, prospects
andreputation.
The Group has a well-established legal and
regulatory compliance structure aimed at
ensuring adherence to regulatory requirements
and identifying restrictions that could adversely
impact the Group’s activities.
The Group General Counsel and (in relation
tothose parts of the business managed by
BAESystems, Inc.) the Senior Vice President
andGeneral Counsel for BAE Systems, Inc. have
responsibility for developing and maintaining
alegal risk management framework across the
Group. This includes defining the relevant legal
risk policies and oversight of the implementation
of controls to manage legal risk including, among
other things, policies in relation to appointment
ofadvisers, export control and improper
businesspractices.
Where the Group participates in joint ventures,
itexerts its influence to encourage the adoption
ofsubstantially equivalent policies governing legal
and regulatory compliance by the joint venture,
orotherwise through appropriate contractual
provisions and/or senior director representation
on the joint venture boards.
The legal function’s operating model aligns
legalexpertise to businesses, functions, products,
activities and geographic locations so that the
Group’s businesses have access to legal expertise
and support as required. Legally-qualified and
trained staff work in partnership with the
businesses and functions to identify, manage
andescalate legal risks as necessary.
As part of this operating model, the legal
functionsupports the businesses and functions
inreviewing proposed contracts to ensure terms
are appropriate and not unduly onerous.
Businesses and functions are responsible for
identifying and escalating to the legal function
legal risk in their areas, as well as adherence to
policy and control requirements. To enable this,
the legal function provides targeted training
tobusinesses and functions where appropriate.
The Group’s legal function also reinforces the
Group’s ethics programme globally through
training and other means.
The Group’s legal function manages litigation
andadvises on the management of associated
impacts. Where appropriate, the legal function
will engage external counsel on litigation matters.
The ranking and evaluation of risks as at the date of this Strategic Report should not be relied upon as a guide to their future ranking and evaluation.
Additional risks and uncertainties currently unknown to the Group, or which the Group currently deems immaterial, may also have an adverse effect
onthe business or financial condition of the Group.
65BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
As required by the provisions of the UK Corporate Governance Code 2018,
the Board has undertaken an assessment of the future prospects of the
Group, taking into account the Group’s current position and principal risks.
Viabilit y statement
The viability assessment period
The directors have assessed the viability
ofthe Group over a five-year period. This
isconsidered the most appropriate period
for the assessment as it is consistent with
theGroup’s five-year business planning
cyclewhich provides a robust planning
toolagainst which long-term decisions
canbe made.
Analysis of business prospects
The Board has considered the long-term
prospects of the Group based on its strategy,
markets and business plan as outlined in this
report. In its strategic review of the Group,
the Board recognised the importance of
certain factors that underpin its long-term
prospects and viability. In summary, these are:
• a diverse portfolio of businesses based
onwell-established market positions,
providing both complex, high-technology
products and programmes, and
differentiated technical services
andsupport;
• a geographically diverse business with a
high proportion of sales to governments
and other major prime defence contractors.
The Group’s robust order backlog
continues to provide astrong foundation
for further market diversity and growth;
• long-term visibility of sales and future
saleprospects through a substantial order
backlog and incumbent positions on major
defence programmes; and
• market positions underpinned by a
highly-skilled workforce, intellectual
property assets and proprietary know-
how, which are safeguarded and
developed for the future by customer-
andGroup-funded investment.
This assessment considered both
the Group’s long-term prospects
and also its ability to continue in
operation and meet its liabilities
asthey fall due over its five-year
business planning period.
Assessment
The Board’s assessment of the Group’s
prospects was informed by the following
business processes:
Risk management process
The Group has developed a structured
approach to the management of risk
(asdetailed on pages 55 and 56). The Board
notes that the principal risks identified on
pages 58 to 65 could impact the future
viability of the Group, and has undertaken
amore detailed scenario analysis in relation
to specific risks that are considered most
likely to have a more immediate and severe
financial impact on the Group as part of
theIntegrated Business Plan (IBP) process.
The viability assessment has taken into
account reasonably plausible, but severe,
downside scenarios related to these risks
andassessed the impact on the future
cashflows, profitability, financial covenants,
solvency and liquidity of the Group.
Thescenarios tested included the impact
ofmultiple adverse factors and any
mitigating factors.
Integrated Business Plan
The IBP represents a common process with
standard outputs and requirements that
produces an integrated strategic and
business plan for the Group and also for each
of its businesses over the following five years.
The detailed plan is reviewed each year
bythe Board as part of its strategy review
process. Once approved by the Board, the
IBP provides the basis for setting all detailed
financial budgets and strategic actions
across the businesses, and is subsequently
used by the Board to monitor performance.
66
BAE Systems plc  Annual Report 2024
Risk
Strategic report
This Strategic report was approved by the Board of directors of BAE Systems plc on 18 February 2025 and signed on its behalf by:
Anthony Clarke
Company Secretary
Liquidity and solvency analysis
The Group’s liquidity is underpinned by an
undrawn committed Revolving Credit Facility
(RCF) of £2bn. This facility is available to meet
general corporate funding requirements.
The Board regularly reviews an analysis
looking at the forecast working capital
requirements, cash flow, and committed
borrowing (see note 21 on page 181) and
other funding facilities available to the
Group over the five-year period covered by
the IBP. This analysis includes ‘stress testing’
of the Group’s liquidity and solvency under
severe, but plausible, scenarios including:
• the Group being unable to access debt
markets to renew term debt facilities;
• an unfavourable change to the terms
oftrade the Group enjoys with certain
principal customers;
• the inability of the Group to estimate
accurately and control costs on significant
fixed price contracts; and
• the loss of significant export awards
assumed in the IBP.
On 16 February the Group completed
ontheacquisition of the Ball Aerospace
business from Ball Corporation for $5.5bn
(£4.4bn). The transaction was funded by a
combination of $1.5bn (£1.2bn) of existing
cash resources and new external debt in
theform of a bridge loan facility. In March,
the facility was subsequently refinanced
following the issue of $4.8bn (£3.8bn)
ofdebt finance.
The Board has considered the impact
ofrefinancing ofthe facility, taking into
accountthe Group’s investment grade
creditratings, strong balance sheet and
trackrecord of raising external debt to
fundM&A activity, and the cash outlay
associated with the acquisition when
making this viability statement.
Conclusion
On the basis of this, and other matters
considered and reviewed by the Board, the
Board has reasonable expectations that the
Group will be able to continue in operation
and meet its liabilities as they fall due over
the following five years. It is recognised that
such future assessments are subject to a level
of uncertainty that increases with time and,
therefore, future outcomes cannot be
guaranteed or predicted with certainty.
Going concern statement
Accounting standards require that directors
satisfy themselves that it is reasonable for
them to conclude whether it is appropriate
to prepare financial statements on a going
concern basis and the Code requires that, if
appropriate, this report includes a statement
to that effect. Following review, the directors
have concluded that it is appropriate to
adopt the going concern basis for these
financial statements and have not identified
any material uncertainties concerning the
Group’s ability to do so in the 12-month
period from the date of approving them.
For this reason, they continue to adopt
the going concern basis in preparing
the accounts.
67
BAE Systems plc  Annual Report 2024
Strategic report Financial statements Additional informationGovernance
Chair’s governance letter
Dear Shareholders
This section focuses on the Company’s
governance structures, the work of the Board
and its committees and how we comply with
the UK Corporate Governance Code 2018
(the Code) and other regulatory requirements.
As you would expect from a company that
plays such an important role in the UK’s
national security, and supplies goods and
services that support the national security of
other nations, high standards of governance
and robust governance processes are
wellembedded across the Group. Clear
frameworks and structures are in place
toprovide the Board with the appropriate
level of oversight and assurance to assess
theeffectiveness of governance controls.
Clearstandards of behaviour are outlined in
ourCode of Conduct (which was refreshed
and relaunched in January 2024), which
dovetails with the Operational Framework.
Both of these underpin the Company’s
strong governance and culture.
We continue to play our
part in protecting those
who protect us.
Our governance structures also respect and
uphold the special arrangements in place to
protect the national security interests of our
government customers. These arrangements
are essential to our success as an international
company and our role as a valued and
trusted partner in the security interests of
our customers. We have a significant
presence in the US, where the Department
of Defense is our largest customer. There is
more detail on arrangements for managing
our US business on page 75.
The Board welcomes the new UK Corporate
Governance Code 2024 published by the
Financial Reporting Council (FRC) in January
2024. This will apply to our 2025 financial
year, with the exception of Provision 29
ofthe new code, which will apply to the
Company from 1 January 2026. We will
seekto ensure that our governance
frameworks remain aligned with best
practice, while taking full account of the
Company’s circumstances.
During the year, the Audit and Risk
Committee gave detailed consideration
tothe changes to the Code, and monitored
the Company’s progress in complying
withthe new Principles and Provisions.
Inaddition, the Board updated the Terms
ofReference for its committees, applying
amore strategic review of the committees’
agendas and remit to ensure alignment
withthe Board’s priorities and longer-term
aspirations. Further, as we build on the
refreshed approach to risk management
andassurance outlined elsewhere in the
Annual Report, our Audit Committee
hasbeen renamed the Audit and Risk
Committee toreflect its role in our risk
management process. This report contains
further information on the work of the
Board’s committees, which begins on
page83.
The Nominations Committee continues to
lead the process for Board appointments
and ensures that plans are in place for
orderly Board and senior management
succession. At the conclusion of the 2024
AGM, our Company Secretary, David Parkes,
retired from his role. I would like to take this
opportunity to thank David for his many
years of dedicated service to the Board.
Hissuccessor is Anthony Clarke who we
recruited externally.
Further information on the Board’s
approachto succession planning and
ourDiversity and Inclusion policy can
befound on pages72 and 73.
Visiting our operations and engaging
directly with employees and local leadership
teams are an important part of the Board’s
role. These visits and engagements give
directors deeper insight into employee views
and our Company culture. In 2024, the Board
visited our newly acquired Space & Mission
Systems business in Colorado, US, and our
Board/Committee activities sections of this
report provide information on other site
visits undertaken in 2024. Along with its
broader responsibilities, our Environmental,
Social and Governance Committee continues
tofocus on employee matters and you can
read more about its activities on page 91.
The Innovation and Technology Committee
has had its own programme of visits and
youcan read more on page 93.
Effective board performance is another
keypart of governance. This year, the review
of the Board and its Committees was an
internally-facilitated assessment, led by
myself with the assistance of the Company
Secretary. This followed an in-depth
externally-facilitated review when I became
Chair in 2023. Further details on the
evaluation process, its outcomes and the
actions we willbe taking as a result are
outlined in moredetail on page 85.
Finally, as a Company with a strong heritage
in defence and national security, I am
incredibly proud that we continue to play
our part in protecting those who protect us.
Iwould liketo thank my colleagues on the
Board for their counsel and support through
the last year.
Cressida Hogg CBE
Chair
In this section
Chair’s governance letter 68
Board of directors 69
Board and executive management
diversityinformation 72
Governance framework 74
Our stakeholders and work of the Board 76
Applying the 2018 UK Corporate
GovernanceCode Principles 80
Compliance with the 2018 UK Corporate
Governance Code provisions 82
Nominations Committeereport 83
Audit and Risk Committee report 86
Environmental, Social and
GovernanceCommitteereport 91
Innovation and Technology
Committeereport 93
Remuneration Committeereport 94
68
BAE Systems plc  Annual Report 2024
Directors’ report
Board of directors
Dr Charles Woodburn CBE
Chief Executive
Tenure: 8 years and 9 months
Nationality: UK
Skills, competence
andexperience
Charles joined BAE Systems in
May 2016 as Chief Operating
Officer and became Chief
Executive on 1 July 2017. He is
anexperienced business leader
with over 28 years’ experience in
the aerospace and defence and
oil and gas industries. Prior to
joining the Company in 2016,
hewas Chief Executive Officer
ofExpro Group and, before
that,he spent 15 years with
Schlumberger holding a number
of senior management positions
in Asia, Australia, Europe and
theUS.
Charles is a Fellow of the Royal
Academy of Engineering and
was awarded a CBE in 2023 for
services to international trade
and skills.
Outside commitments
onlisted companies
None.
Brad Greve
Chief Financial Officer
Tenure: 4 years and 10 months
Nationality: UK/US
Skills, competence
andexperience
Brad joined BAE Systems in
2019as Group Finance Director
designate and became a Board
member on 1 April 2020. He is
ahighly experienced executive
with deep financial and
operational management
experience, gained during a
career in excess of 30 years in
international engineering and
technology businesses. Prior to
joining the Company, he held a
number of senior executive roles
in Schlumberger, undertaking
roles in Europe, Africa, South
America and the US.
Outside commitments
onlisted companies
None.
Tom Arseneault
President and Chief Executive
Officer of BAESystems, Inc.
Tenure: 4 years and 10 months
Nationality: US
Skills, competence
andexperience
Tom was appointed to the Board
on 1 April 2020 and serves as
President and Chief Executive
Officer of BAE Systems, Inc.
Throughout his career, Tom
hasled complex organisations
responsible for fulfilling critical
and technologically challenging
missions. Before becoming
President and Chief Executive
Officer of BAE Systems, Inc.,
heheld various senior roles
within BAE Systems, Inc.
Prior to his senior leadership
appointments, Tom managed
various organisations and
programmes for Sanders, a
Lockheed Martin company, until
it was acquired by BAE Systems
in 2000. Earlier in his career, he
held a variety of engineering
and programme management
positions with General Electric
and TASC. Tom is a member of
the Executive committee of the
Aerospace Industries Association.
Outside commitments
onlisted companies
None.
Cressida Hogg CBE
Chair
Tenure: 2 years and 3 months
(appointed to the Board in
November 2022, appointed
Chair in May 2023)
Nationality: UK
Skills, competence
andexperience
Cressida was appointed Chair
ofBAE Systems plc in May 2023,
having joined the Board as a
non-executive director and Chair
designate in November 2022.
She previously had a successful
executive career, spent largely
with 3i Group, where she
gaineda deep understanding
oflarge long-term infrastructure
projectsand businesses, gaining
international experience whilst
working in various countries
including the US, Canada, India,
Australia and the Middle East.
Cressida was awarded a CBE
in2014 for services to
infrastructure investment
andpolicy.
Outside commitments
onlisted companies
Senior Independent Director
ofLondon Stock Exchange
Group plc.
Committee Chair
A
Audit and Risk Committee
E
Environmental, Social and GovernanceCommittee
I
Innovation and Technology Committee
N
Nominations Committee
R
Remuneration Committee
N
69BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Board of directors continued
Crystal E Ashby
Non-executive director
Tenure: 3 years and 5 months
Nationality: US
Skills, competence and experience
Crystal has held several senior
leadership roles in the energy
andhealthcare sectors, as well
asconsiderable experience in
government affairs and legal
andregulatory matters. Throughout
her executive career, Crystal held
various senior leadership roles at
BPAmerica Inc., culminating with
her appointment as Executive Vice
President of Government and Public
Affairs and Strategic University
Partnerships, and membership
onitsAmericas Leadership Team.
Shewas previously Executive Vice
President, Chief People Officer,
DEIand Communications Officer
ofthe US health insurance company,
Independence Blue Cross.
Crystal is a Fellow of the National
Association of Corporate Directors
aswell as a member of the
International Women’s Forum
andAmerican Bar Association.
Other commitments
onlistedcompanies
None.
Angus Cockburn
Non-executive director
Tenure: 1 year and 3 months.
Nationality: UK
Skills, competence and experience
Angus was previously the Group
Chief Financial Officer of Serco
Group plc and, before that, the
ChiefFinancial Officer of Aggreko
plc. He is also a former non-executive
director of GKN plc, Howdens Joinery
Group PLC and Global Income &
Growth Trust.
Angus holds an MBA from
Switzerland’s IMD Business School.
He is also an Honorary Professor
atthe University of Edinburgh
andamember of the Institute of
Chartered Accountants of Scotland.
Other commitments
onlistedcompanies
Chair of James Fisher & Sons plc.
Senior Independent Director and
Chairof the Audit Committee of
Ashtead Group plc.
Dame Elizabeth Corley
1
CBE
Non-executive director
Tenure: 9 years.
Nationality: UK
Skills, competence and experience
Dame Elizabeth brings a wealth of
investor, governance and boardroom
experience to the Board. She is a
former non-executive director of
Pearson plc and Morgan Stanley Inc.
and served as Chief Executive Officer
of Allianz Global Investors, initially
for Europe then globally, from 2005
to 2016. Prior to that, she worked for
Merrill Lynch Investment Managers.
Elizabeth is active in representing the
investment industry and developing
standards within it. She is Chair
Emeritus of the Impact Investment
Institute, an acclaimed writer and
aFellow of the Royal Society for
theencouragement of Arts,
Manufactures and Commerce.
Other commitments
onlistedcompanies
Chair of Schroders plc.
Nick Anderson
Non-executive director
Tenure: 4 years and 3 months
Nationality: UK/US
Skills, competence and experience
As the former Group Chief Executive
of a FTSE 100 industrial engineering
company, Nick has a proven track
record of leading and growing
global businesses. His knowledge
and experience, particularly in
leading international engineering
and manufacturing operations, are
aparticular asset to the Board.
During his 10-year tenure as Group
Chief Executive of Spirax Group plc,
Nick oversaw the company’s
successful global expansion.
Priortojoining Spirax Group plc,
hewas Vice-President of John
CraneAsia Pacific and President
ofJohnCrane Latin America,
partofSmiths Group plc.
Other commitments
onlistedcompanies
Non-executive director of The Weir
Group plc.
Non-executive director of Spectris plc.
E I N E N R
A N
 MEMBERSHIP AND ATTENDANCE FOR THE YEAR ENDED 31 DECEMBER 2024
1. Crystal Ashby was unable
toattend the meetings in
June2024 due to conflicting
commitments.
2. Dame Elizabeth Corley
wasappointed to the
Environmental, Social and
Governance Committee
inSeptember 2024.
3. Lord Sedwill retired as
anon-executive director
on10 September 2024.
Board
meetings
Committee
membership
Audit
andRisk
Committee
Environmental, Social
and Governance
Committee
Innovation and
Technology
Committee
Nominations
Committee
Remuneration
Committee
Cressida Hogg 7/7
N
– – – 5/5 –
Nick Anderson 7/7
E
I
N
– 4/4 2/2 5/5 –
Crystal E Ashby
1
6/7
E
N
– 3/4 – 5/5 –
Angus Cockburn 7/7
A
N
R
5/5 – – 5/5 5/5
Dame Elizabeth Corley
2
7/7
A
E
I
N
R
5/5 2/2 2/2 5/5 5/5
Jane Griffiths 7/7
A
E
N
5/5 4/4 – 5/5 –
Ewan Kirk 7/7
I
N
R
– – 2/2 5/5 5/5
Stephen Pearce 7/7
A
E
N
5/5 4/4 – 5/5 –
Nicole Piasecki 7/7
I
N
R
– – 2/2 5/5 5/5
Lord Sedwill
3
4/4
E
N
– 2/2 – 3/3 –
Charles Woodburn
Chief Executive
7/7 – – – – –
Brad Greve
Chief Financial Officer
7/7 – – – – –
Tom Arseneault
President and Chief
Executive Officer of
BAESystems, Inc.
7/7 – – – – –
A I N RE
70 BAE Systems plc  Annual Report 2024
Directors’ report
Committee Chair
A
Audit and Risk Committee
E
Environmental, Social and GovernanceCommittee
I
Innovation and Technology Committee
N
Nominations Committee
R
Remuneration Committee
Dr Ewan Kirk
2
Non-executive director
Tenure: 3 years and 8 months
Nationality: UK
Skills, competence and experience
Ewan has extensive experience
incommercialising data science
andquantitative analysis. He has
ledmultiple ventures to identify,
apply and leverage technology
andmathematics research in
bothbusiness and philanthropy.
In2006, Ewan founded Cantab
Capital Partners, a science-driven
investment management firm,
whichwas acquired by GAM
Investments in 2016 and is oneof
thetop-performing quantitative
investment companies in the UK.
Priorto founding Cantab, Ewan was
Partner and Head of Quantitative
Strategies Group at Goldman Sachs.
In 2023, Ewan became the first Royal
Society Entrepreneur in Residence
atCambridge University at the
Centre for Mathematical Sciences.
He holds a PhD in General Relativity
from the University of Southampton,
a MASt in Mathematics from
Queen’s College, Cambridge,
andaBSc in Natural Philosophy
andAstronomy from the University
of Glasgow.
Other commitments
onlistedcompanies
None.
Stephen Pearce
Non-executive director
Tenure: 5 years and 8 months
Nationality: Australia
Skills, competence and experience
Stephen has over 20 years’
experience as a director of public
companies, as well as over 30 years
of financial and commercial
experience in the mining, oil and
gas,and utilities industries. He has
held a range of leadership roles,
most notably serving as Finance
Director of Anglo American plc for
over six years. He previously served
as CFO and as an executive director
of Fortescue Metals Group Limited
from 2010 to 2016.
Stephen is a Fellow of the Institute
ofChartered Accountants, a
Fellowof the Governance Institute
ofAustralia and a Member of
theAustralian Institute of
CompanyDirectors.
Other commitments
onlistedcompanies
Non-executive director of
South32Limited.
Nicole Piasecki
Non-executive director and
Senior Independent Director
Tenure: 5 years and 8 months
Nationality: US
Skills, competence and experience
Nicole was appointed Senior
Independent Director on 1 January
2024. She has extensive experience
gained from executive positions
withinthe aerospace industry and
leadership of multi-functional teams.
She previously held a number of
engineering, sales, marketing and
business strategy roles during her
25-year career with the Boeing
Company, including Vice President
andGeneral Manager of the
Propulsion Systems Division and Vice
President ofBusiness Development
& Strategic Integration for Boeing’s
commercial aircraft business and
President of Boeing Japan.
Nicole formerly served on the
Federal Aviation Authority’s
Management Advisory Board, the
American Chamberof Commerce
inJapan, the USDepartment of
Transportation’s Future of Aviation
Advisory Committee and the Federal
Reserve Bank of SanFrancisco’s
Seattle branch. Sheisaformer
director of Howmet Aerospace Inc.
Other commitments
onlistedcompanies
Non-executive director of
BWXTechnologies, Inc.
Non-executive director of
Weyerhaeuser Company.
Dr Jane Griffiths
Non-executive director
Tenure: 4 years and 10 months
Nationality: UK
Skills, competence and experience
Jane has experience in leading
hightechnology businesses and
international corporate leadership.
Inher executive career with Johnson
&Johnson, she held various
executive positions and led its
Corporate Citizen Trust in EMEA
andsponsored its Women’s
Leadership Initiative.
Jane is a former non-executive
director of Johnson Matthey plc.
Shehas also previously served as
Company Group Chair of Janssen
EMEA, Johnson & Johnson’s
research-based pharmaceutical
arm,where she was sponsor of
Janssen’s Global Pharmaceuticals
Sustainability Council. She is a former
Chair of the European Federation
ofPharmaceutical Industries and
Associations, past Chair of the
PhRMA Europe Committee and
former member of the Corporate
Advisory Board of the UK
Government-backed ‘Your Life’
campaign, aimed at encouraging
more people to study STEM subjects.
Other commitments
onlistedcompanies
None.
A E N I N R A E N I N R
1. Dame Elizabeth Corley will stepdown as a member of the Audit and Risk
Committee with effect from 24 February 2025.
2. Ewan Kirk will become a member ofthe Audit and Risk Committee with
effectfrom24 February 2025.
3. Subsequent to the approval of this Annual Report, on 24 February,
DameElizabeth Corley stepped down from the Environmental, Social
andGovernance Committee and Angus Cockburn was appointed to the
Environmental, Social and Governance Committee as of the same date.
71BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
The Board has adopted a Diversity and Inclusion policy
1
and recognises
the importance of the Board’s membership representing diversity in its
broadest sense.
Board and executive management diversity information
Board Diversity and Inclusion policy
In accordance with the Code and UK Listing
Rules, the Board has adopted a Board
Diversity and Inclusion policy with the aim
ofmaintaining a diverse Board, including an
appropriate balance of nationalities, gender,
ethnicity, skills, knowledge, experience and
personal strengths. The Board Diversity and
Inclusion policy is monitored and reviewed
by the Nominations Committee and aligns
with the targets set by the FCA.
In accordance with the policy, appointments
and succession plans are based on merit
andobjective criteria, reflecting the skills,
knowledge and experience needed to
ensure we have a well-rounded and effective
Board. In the case of Non-Executive Directors,
other relevant matters are also taken into
account, such as independence and the
ability to fulfil time commitments.
Due to the nature of the Group’s
activities,the UK Government holds
aSpecialShare inthe Company, ensuring
that the Company cannot be non-British
controlled. The Special Share also includes
provisions requiring that a majority of the
directors on the Board and on any Board
Committee are British nationals and the
rolesof Chair and Chief Executive are
alsosubject to UK nationality restrictions.
Furthermore, as different diversity and
inclusion requirements apply in the
jurisdictions in which the Group operates,
the Company accordingly adjusts the
application of its policies.
As at 31 December 2024 (the reference
dateadopted by the Company pursuant
tothe UK Listing Rules), the Board met
thefollowing targets:
• at least 40% of the Board are women;
• at least one senior Board position
isheldby a woman; and
• at least one Board member is from
aminority ethnic background.
There have been no changes to the Board
between the reference date and the date
onwhich this Annual Report was approved.
Board and executive diversity data as at
31 December 2024 can be found on the
nextpage.
1. A copy of the Board Diversity and Inclusion Policy can be found at www.baesystems.com.
72 BAE Systems plc  Annual Report 2024
Directors’ report
Sex and gender identity
Number of
Boardmembers
Percentage
oftheBoard
Number of senior
positions on the
Board(CEO, CFO,
SIDand Chair)
Number in
executive
management
Percentage
of executive
management
Men 7 58.33% 2 8 61.54%
Women 5 41.67% 2 5 38.46%
Other categories – – – – –
Not specified/
prefernottosay – – – – –
Ethnic background
Number of
Boardmembers
Percentage
oftheBoard
Number of senior
positions on the
Board(CEO, CFO,
SIDand Chair)
Number in
executive
management
Percentage
of executive
management
White British or
otherWhite (including
minority-white groups) 11 91.67% 4 12 92.31%
Asian/Asian British – – – – –
Black/African/
Caribbean/Black
British 1 8.33% – – –
Other ethnic group – – – 1 7.69%
Not specified/
prefernottosay – – – – –
Board and executive management
diversity asat31December 2024
In compliance with UK Listing Rule 6.6.6R(9),
thetables to the right detail the diversity of
theindividuals on the Board and executive
management as at 31 December 2024.
As at 31 December 2024, there were 13 Executive
Committee members (including the Chief
Executive, President and Chief Executive Officer of
BAE Systems, Inc. and the Chief Financial Officer,
who are also executive directors) and 12 Board
directors. The Company Secretary is included in
the calculation of executive management.
The data was obtained on a voluntary self-
reported basis. Participants were invited
tocomplete a survey through a secure electronic
portal, wherein they were asked to confirm their
sex and gender identity, and ethnic background.
The descriptive categories of sex, gender and
ethnic background set out in the survey were
taken verbatim from Annex 1 to UK Listing
Rule6 and therefore correspond precisely
withthe tables.
On 10 September 2024, following the retirement
of Lord Sedwill, the number of men on the
Boardreduced to seven. As a result, the
percentage of women on the Board increased
to41.67%. Changes were made to the executive
management during the year, reducing
membership from 14 to 13. As a result of this
change, the percentage of women in executive
management increased to 38.46%. See the
Nominations Committee report on page 83 for
further information and disclosure on diversity.
 GENDER
B A
A Male 7
B Female 5
 NATIONALITY
A
B
C
A UK 7
B US 4
C Australia 1
 ETHNICITY
B
A
A White British or other 11
White (including minority
White groups)
B Black/African/Caribbean/ 1
Black British
 TENURE
(independent non-executive directors)
A
C
B
A Up to three years 2
B Over three and 6
up to six years
C Over six years 1
Skills and experience
Risk management
Long-term contracting
Legal and compliance
International business/commercial
Human capital management
Executive
Non-executive
Financial/accounting
Environmental and social
Engineering, science and technology
Company leadership
Board experience
16
35
34
39
15
26
37
8
2
6
Board information
73BAE Systems plc  Annual Report 2024
Additional informationFinancial statementsGovernanceStrategic report
Principal committees
The Board has established principal
committees which focus on particular
areas, as set out below. The chair
ofeachcommittee reports to the
Boardonthe committee’s activities
aftereach meeting.
Executive and other committees
This is the structure through which we manage the Group, including the Board
division of responsibilities.
Governance framework
Board engagement with stakeholders
In considering and engaging with stakeholders, the directors act in accordance with Section 172
of the Companies Act. The work of the Board during the year is detailed on pages 76 to 79.
Role of the Board
The Board is responsible for promoting the long-term sustainable
success of the Company, generating value for shareholders, while
having regard to our stakeholders and the impact of our operations
onthe environment and the communities in which we operate.
Seepage 76 formore information on the workof the Board.
The Board agrees the Group’s purpose, values and standards of
behaviour expected of all employees, satisfying itself that these and
theculture of the business are aligned. The Board also sets the Group’s
strategy and oversees and monitors internal controls, risk management
andthe Group’s governance framework. Ourrobust governance
framework, the Operational Framework, is agreed by the Board
andsets out how we do business.
Purpose
The Company’s purpose (see page 2) recognises that we serve,
supplyand protect those who serve and protect us, and that we have
important wider stakeholder responsibilities that the Board has regard
toin its decision-making. The Board monitors our strategy, behaviours
and culture and their alignment with our purpose.
Culture
Our culture is to be performance driven and values led. The Board
isresponsible for ensuring that culture is aligned with our purpose,
values and strategy.
Strategy
Our strategy (see page 12) is comprised of six key long-term focus areas
aligned with our vision and mission. Agreed annually by the Board, it is
an important part of how it promotes the long-term sustainable success
ofthe Group.
The Board
Board composition
The Board consists of executive and independent non-executive directors,
plusanon-executive Chair who wasindependent in accordance with the
Code on her appointment. There is a clear division inthe roles and
responsibilities of the executive and non-executive directors and between
the Chair and Chief Executive which are detailed in our Board Charter
(available on the Company’s website).
Chair
Leads the Board and is responsible for its overall effectiveness in directing the Company.
Alsofacilitates constructive Board relations and the effective contribution of all non-executive
directors, and ensures that directors receive accurate, timely and clear information.
Chief Executive
Responsible for the development and delivery of the strategy agreed by the Board. Developing
fortheBoard’s approval, appropriate values and standards to drive the required behaviours
andbyleading by personal example with regards to Company culture.
Senior Independent Director
Acts as a sounding board for the Chair and alsoas an intermediary for the other directors
asnecessary. Annually, or on other occasions asnecessary, leading the non-executive directors
inappraising the Chair’s performance and providing feedback.
Company Secretary
Ensures that Board procedures are complied with andadvises the Board on all governance
matters.Also supports the Board by ensuring that it has the policies, processes, information,
timeandresources it needs in order to function effectively.
Environmental, Social and
Governance Committee
Page 91
Remuneration
Committee
Page 94
Nominations
Committee
Page 83
Innovation and
TechnologyCommittee
Page 93
Audit and Risk
Committee
Page 86
74 BAE Systems plc  Annual Report 2024
Directors’ report
Responsible trading principles
How we conduct business is fundamental to
oursuccess and we mandate aprinciples-based
approach to our business activity. We do not
compromise on the way weconduct business
and consistency of this approach is key in
defining our reputation.
Product Safety policy
We set out principles which describe our
approach to product safety to reduce the risk of
unintentional harm to people, property and the
environment. They apply throughout the life of
the product and throughout the supply chain.
Workplace and operational environment
Our people management expectations are
communicated to all employees and set out
within our People policy. We have a zero
tolerance policy regarding corruption, and
ouremployees are made aware of their role in
ensuring we maintain high standards of ethical
conduct. Page 52 provides further detail about
ouranti-corruption programme.
The safety and wellbeing of our employees is
paramount and our high standards for health
andsafety management provide a common
framework to guide our workforce. Further
information can be found on page 26.
We use our expertise to reduce our global
environmental impacts and to develop
productsand services for our customers
whichreduce, where possible, the impacts
onthe environment. Our Environmental,
Socialand Governance Committee oversees
ourdecarbonisation strategy and impact on
theenvironment including GHG emissions,
efficient use ofresources, land use and
biodiversity, and theenvironmental impact
ofthe Group’s supplychain.
We are committed to ensuring that IT systems
and services are used in a manner which
promotes effective communication and working
practices within the organisation and to
preventing damage to our business or
reputation through misuse of those systems.
With the support of ourInternal Audit team,
ourIT assurance and governance programme
hasbeen developed to support the effective
management of cyber risks.
Suppliers
We depend upon our suppliers to provide fully
compliant, cost-effective equipment, goods,
services and solutions, which are an integral
partof the world-class products required by
ourcustomers, and also support the effective
operations of our businesses and the Group’s
standards of business conduct. Our supply chain
management and Supplier Principles – Guidance
for Responsible Business (the Supplier Principles)
are focused on high achievement of our standards.
Our standard form supplier contracts contain
anti-corruption and anti-bribery provisions which
stipulate the expectation that suppliers comply
with applicable safety, environment and human
rights legislation and also meet our standards on
ethical business conduct and Supplier Principles.
Risk Management policy
We understand that effective management
ofrisks is essential to the delivery of a business’s
strategic objectives and its financial targets.
OurRisk Management policy provides direction
to employees and line and functional leaders
onhow to carry out project and business risk
management. We set clear requirements for
themanagement and reporting of risks in
support of the delivery of our strategy. Project
risks are managed through our LCM Framework.
See pages 55 to 56 for further details.
Core business processes
Our IBP represents a common process with
standard outputs and requirements that produces
an integrated strategic business plan for the
Group and also for each of our businesses over
the following five years. The Board reviews our
IBP each year as part of its strategy review process.
Once approved, the IBP provides the basis for
setting all detailed financial budgets and strategic
actions across the businesses and is subsequently
used by the Board to monitor performance.
As the Operational Framework mandates,
businesses and Group functions complete a
bi-annual Operational Assurance Statement
(OAS). The OAS is one of the Group’s review
processes, which provides assurance that
mandated policies and processes are being
complied with. Together with reviews
ourInternal Audit team undertakes and the
work ofthe external auditors, the OAS forms the
Group’s process for reviewing the effectiveness
of our system of internal controls.
Our LCM Framework describes our approach
tothe assurance of project risk management.
LCM is integral to the successful execution of
theGroup’s projects and programmes. Its
application provides progressive risk-based
assurance throughout thelifecycle toaid
decisions, supporting delivery of projects
toachieve customer satisfaction, schedule
andfinancial requirements.
The purpose of the mergers, acquisitions
anddisposals process is to provide a structured
approach to managing the acquisitions, strategic
joint ventures and disposals. It forms a part of
ourstrategy and planning framework in order
tosupport the delivery of the IBP.
National security arrangements
The Group is subject to various national security
requirements which are an important part of our
governance arrangements and how we operate
as a defence company, as well as how we meet
the needs of our customers. Due to the nature
ofour activities, the UK Government holds a
Special Share in the Company, ensuring that
theCompany cannot be non-British controlled.
We operate our US businesses through
BAESystems, Inc. and its subsidiaries.
However,due to the nature of their activities,
theCompany, BAE Systems, Inc. and the
USGovernment have entered into an SSA
toaddress national security matters relating to
the ownership and control of our US defence
businesses. Consequently, as a member of the
Group, BAE Systems, Inc. is subject to the
Operational Framework and its policies except
where they conflict with the SSA or the US
national security interest.
The SSA augments the Group’s governance
structure by requiring (among other things)
thatBAE Systems, Inc. appoints independent
non-executive directors (known as ‘outside
directors’) to its board. These outside directors
are currently retired or former members of the
US armed forces and intelligence community,
and also former Members of Congress, and are
required by the SSA to perform their duties
(including their fiduciary duties) in good faith
and in a manner believed to be, first, in the
USnational security interest and, second,
wherenot inconsistent with the US national
security interest, in the best interests of
BAESystems, Inc. and its shareholders.
Compliance with the SSAand USGovernment
security and export regulations is overseen by
aGovernment Security Committee, comprising
the outside directors and BAESystems, Inc.
executives and meetings are held regularly
withUS Government oversight agencies to
provide feedback on that compliance.
Similarly, our Australian operations are subject
toan Overarching Deed with the Commonwealth
of Australia, which protects national security
andother interests, and allows the Group to
ownand manage certain Australian defence-
related industrial assets.
We take pride in managing our operations effectively and responsibly
Internal controls
Core Business Processes
This describes thereporting and reviews
mandated by theOperational Framework,
which provide upwards visibility of project
andbusiness performance.
Operational Assurance
A process through which line and functional
leaders respectively confirm twice yearly that
their businesses andfunctions are compliant
with theOperational Framework.
Internal Audit
Assesses the effectiveness ofinternal
controlsthrough aprogramme ofreviews
based on acontinuous assessment of business
risk across the Group.
Operational Framework
Agreed annually by the Board, the Operational Framework is a
comprehensive statement of mandated governance requirements
and delegated responsibilities. The Code’s principles are embedded
within the Operational Framework, and its policies and processes
underpin all the disclosures the Board makes pursuant to the
Code’sprovisions.
Our Operational Framework provides a stable foundation from which
todeliver our strategy, improve our Group performance and continue
todevelop our culture.
It is mandatory across allwholly-owned entities and details our
organisation, governance framework, core business practices
anddelegated authorities.
75BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Understanding and exceeding the expectations of our stakeholders is critical to the
long-term success of our business and the vital role we play in helping our customers
to protect people, information and nations.
Our stakeholders and work of the Board
*Companies Act 2006, s.172
(
1
)
A director of a company must act in the way he considers, in good faith, would bemost
likely to promote the success ofthe company forthe benefit of its members as a whole,
and in doing so haveregard (amongst other matters) to:
(a) the likely consequences of any decisionin the long term;
(b) the interests of the company’s employees;
(c) the need to foster the company’s business relationships with suppliers, customers
andothers;
(d) the impact of the company’s operations on the community andtheenvironment;
(e) the desirability of the company maintaining a reputation for high standards of business
conduct; and
(f) the need to act fairly as between members of the company.
This section provides details of how the
directors of BAE Systems plc have acted in
accordance with their duty under Section 172
of the Companies Act (s.172)* to promote
the success of the Company, having regard
(among other things) to certain stakeholders
and other factors during the year.
However, the principles of s.172 are not only
considered at Board level, they are
embedded into our policies and procedures
across the Group. Engagement with our
stakeholders goes beyond the Board and is a
critical activity in supporting our operations.
Our broader business engages throughout
the year covering the build-up to a new
project, during a project and/or the ongoing
support and maintenance that the business
provides our stakeholders. This engagement
is often governed by formulated policies,
control frameworks, regulation and
legislation. It may also differ by region.
We receive feedback at a number of different
levels, which helps inform decisions made on
a delegated basis across the Company within
the well-developed governance structure
approved by the Board. The directors also
receive stakeholder feedback, either directly
via executive management or through
formal reporting processes.
One of our key strategic decisions related
tothe structure and support of GCAP,
whichallowed us to approve the joint
venture agreement in December. GCAP is
astrategically important partnership for
theCompany, our joint venture partners
andthepartner nations involved, which
willallow us to foster closer collaboration
with customers and industry partners
intheUK, Italy and Japan. In light of
this,theBoard discussed the importance
ofthis joint venture and its role in the
development of a next-generation combat
air system that would create long-term
andskilled jobs across the partner nations.
Over the coming years, the Board will
continue to consider GCAP and how best
wecontinue to promote the success of the
Company. In so doing, we will consider the
more than 1,000 suppliers across the partner
nations, maintain our strong relationships
with customers and engage our employees
involved in the delivery of the programme
and the local communities in which we
operate. We will also consider the impact
ofthe programme on the environment,
aswell as the impact of the environment
onprogramme plans.
We considered the workforce requirements
for GCAP and our submarine build
programmes in the UK and Australia,
aswellas the requirements for our other
current and future programmes to
supportcontinued business resilience
andprogramme delivery. Career mobility,
learning culture and leadership were areas
offocus in our conversations. We sought
tounderstand the Company workforce
strategy to support evolving customer
expectations and how to achieve growth,
whilst continuing to deliver on our existing
commitments. During our strategy sessions,
we considered: the Group’s strategic
framework; agreed the2025 integrated
business plan; discussed progress in creating
a more agile and resilient workforce with
theGroup HR Director; and maintaining
operational excellence during periods
ofscale and production ramp-up, whilst
attracting and retaining talented people.
These conversations gave us a clearer
understanding of the longer-term resource
requirements and the Group’s plansto meet
these needs.
As part of our strategy discussions, we were
able to understand the Group’s ambitions
and progress around M&A, in the context of
further strengthening our existing portfolio.
During the year, we reviewed and approved
a successful bid for Kirintec Ltd, which
bolstered our counter UAS and electronic
warfare capabilities. In September, we visited
our new SMS business in Colorado, following
the completion of the Ball Aerospace
acquisition earlier in the year. This visit was
insightful, bringing to life the expertise and
excellence within the business, as well as
providing additional understanding of our
people, customer requirements and
alignment with our strategy.
Meeting the SMS team
In September, the Board visited
ourSMS business in Colorado, US,
and toured the state-of-the-art
Aerospace Manufacturing Center
and Fisher Integration Highbay
facilities, learning first-hand how
our SMS teams are pushing the
boundaries of space to support
ourcustomers’ missions.
76 BAE Systems plc  Annual Report 2024
Directors’ report
Our people
Employees of BAESystems.
Why we engage
The security, safety, wellbeing, skills, capabilities and commitment of our people are critical to ensuring the
long-term viability of our business and delivering the innovation needed to solve our customers’ complex
challenges. Effective engagement enables our employees to contribute to improving business performance
andhelps us to create an environment in which everyone is safe, valued and can fulfil their potential.
What’s important to them
– Safety and wellbeing
– Security
– Career progression, training and
development
– Remuneration, reward
andrecognition
– How we work together
– Business conduct
– Decarbonisation programme
– Contribution to the communities
where we work
MORE INFORMATION PAGE 24
How we engaged at Board level
– Multiple site visits during the year across the
UK,US,Kingdom of Saudi Arabia and Australia.
Alldiscussions and site visits were undertaken in
accordance with the national security requirements
of the UK and other relevant nations.
– Regular updates to the Board on employee
engagement, employee safety, recruitment,
talentidentification, employee pay and diversity
and inclusion.
Key actions taken by the Board in 2024
– Visited the new SMS business in Colorado, US,
where the Board met with employees and senior
leaders, and engaged on a range of topics.
– The Chair, Group Chief Executive and President
andChief Executive Officer of BAE Systems, Inc.
were panellists at an employee town hall event
inColorado.
How we engaged across the Group
– Surveys and insight sessions.
– In-person and virtual meetings, briefings,
conferences, toolbox talks, safety and security
stand-downs, events and listening forums at
alllevels.
– Employee share and incentive schemes.
– Regular leadership updates through videos and
events throughout the year (including in relation
tofinancial and business performance).
– Digital channels including our Employee App,
intranet, email and TV systems.
– Engagement forums with trades unions in
Australia and the UK and labour unions in the US.
Our customers
andend-users
Governments and their procurement
bodies, large prime contractors and
commercial businesses.
The people who use our products and
services, often members of the armed
forces and security services.
Why we engage
Understanding our customers’ needs and challenges is central to our strategy and how and where we invest
intechnologies and infrastructure. Our end-users protect people, information, infrastructure and nations.
Delivering on our customer commitments is critical to our mission to protect those who protect us and drives
ourfocus on operational excellence.
What’s important to them
– Value for money
– Trust
– Quality of our products and services
– Risk management
– Timely delivery
– Safety and wellbeing
– Supporting operational capability
and operability
– Reducing product GHG emissions
– Reliability of our teams to rectify
issues quickly
MORE INFORMATION PAGE 18
How we engaged at Board level
– Regular updates on customer relationships from
theGroup Chief Executive, who meets regularly
with our principal customers.
– President and Chief Executive Officer of our
USbusiness provided feedback to the Board
onBAESystems, Inc.’s customers to the extent
allowed by national security considerations.
Key actions taken by the Board in 2024
– Reviewed and approved the Kirintec acquisition
which provided additional counter UAS and
electronic warfare capabilities.
How we engaged across the Group
– Participated in major events including Farnborough
International Airshow in the UK, the Association
oftheUnited States Army exposition in the US and
theLand Forces exposition in Australia.
– International summits, like the NATO 75 Summit
(Washington) and Shangri-La Dialogue (Singapore),
provided strategic access to key customers
andstakeholders.
– Bespoke technology event series which provided an
opportunity to engage customers around evolving
capability requirements.
– Customer meetings, programme reviews, site visits
andprogramme milestone events.
– Close working with end-users at customer facilities,
bases and sites.
– Regular dialogue with senior military leaders as
wellas senior ministers and political officials in our
keymarkets.
Employee voice
In accordance with Provision 5 of the Code, the Board has established our own arrangements for workforce engagement which we believe are effective.
As a Board, we discuss employee engagement matters and feed back important elements of conversations and observations from our interactions.
Sitevisits provide useful insight into employee voice, as well as the considerations and concerns of the local communities in which we operate. Together
with data and reports from senior management, our site visits, meetings and opportunities for discussions with employees give us good perspective into
thematters important to our employees and their communities. We regularly review the Board’s approach to workforce engagement to ensure its
effectiveness, taking into account contemporary employee engagement practices.
77BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Our stakeholders and work of the Board continued
Our suppliers
The companies we work withto deliver
products and services to our customers.
Why we engage
Our suppliers and an effective, efficient and resilient supply chain are essential to enable usto deliver for our
customers and end-users. Engaged suppliers perform ata much higher level, knowing they are regarded
asvalued partners and critical to mutual success.
What’s important to them
– Labour and skills requirements
– Cost of materials and operations
– Terms of trade
– Timely payment
– Responsible sourcing
– Supply chain resilience
andcontinuityof supply
– GHG emissions and
decarbonisationagenda
1
MORE INFORMATION PAGE 53
How we engaged at Board level
– Directors received information on particular supply
chain matters through our regular Board reports.
– Chief Procurement Officer attended an
Environmental, Social and Governance
Committeemeeting where she provided an
updateon the roll-out of our supplier principles
assurance programme.
– Board provided with an update on actions we are
taking to increase the level of supply chain resilience.
Key actions taken by the Board in 2024
– Board received information on, and discussed,
theCompany’s supply chain within the context of
the five-year risk landscape, focusing on matters
including geopolitics, economics, the environment,
technology, regulation and resource.
How we engaged across the Group
– Direct engagement with our suppliers, including at
major trade exhibitions and industry conferences
such as Farnborough International Airshow, DPRTE
(Defence, Procurement, Research, Technology and
Exportability) and JOSCAR Live in the UK.
– This enabled us to maintain close relationships to
help ensure continuity of supply, more proactively
mitigate supply chain disruptions arising from global
events and support our suppliers by providing
extended demand visibility and expertise to find
mutual solutions to identified supply challenges.
– We shared our expectations on the topic of our
sustainability agenda with our suppliers.
Our partners
Other industry companies, trade
bodiesor academic institutions
withwhom wework.
Why we engage
We benefit from collaborating with others to address industry-wide challenges and develop technologies,
products and services for our customers.
What’s important to them
– R&D investment
– Product and service development
– Collaboration on low-emission
products
– Developing common standards,
including an approach to reduce
industry GHG emissions
1
– Access to market and customer
opportunities
– Sharing best practices and common
standards, including on ESG issues
MORE INFORMATION PAGE 48
How we engaged at Board level
– Environmental, Social and Governance Committee
updated on the resilience of our supply chain, with
a focus on decarbonisation and modern slavery
andhuman rights.
– Environmental, Social and Governance
Committeealso reviewed the community impact
and investments made across the Group.
Key actions taken by the Board in 2024
– Innovation and Technology Committee site visit to
our Submarines business in Barrow-in-Furness, UK,
to discuss the planned technology investment and
product enhancement.
How we engaged across the Group
– Extensive engagement with university partners
inAustralia and the UK, including joint research
projects, hackathons and an annual PhD conference.
– Funding of projects at UK catapult centres to
facilitate R&D collaboration with industry,
government scientists and academia.
– Maintained regular dialogue with industry partners,
think tanks, trade bodies and customers around
challenges that require a multi-partner approach,
including evolving global events, multi-domain
integration, resilient use of space for intelligence
andcommunications, and a sustainability agenda.
Our investors
Investors who provide
capitaltothebusiness.
Why we engage
A strong investor base and continued access to capital is critical to the long-term success of the Group. It is
important to ensure the owners of our shares and potential investors have a full understanding of our business,
including the strategy, growth potential and risks as well as the overall performance of the business in order to
make informed investment decisions.
What’s important to them
– Profitability, growth potential
andcash generation
– Capital allocation and
shareholderreturns
– Operational performance
– Quality of management
– ESG considerations
– Share price performance
MORE INFORMATION PAGE 16
How we engaged at Board level
– Executive Directors and the Chair investor
roadshows following full year and half year
resultsto discuss Group performance with
keyshareholders.
– Chair and Chair of Environmental Social
andGovernance committee hosted an
ESGinvestorevent.
– AGM in May provided an opportunity for
investorsto engage with Board members.
– Chair and Chair of the Remuneration Committee
undertook a consultation with our 65 largest
shareholders, representing approximately 70%
ofvoting rights, on proposed changes to the
Directors’ Remuneration policy.
Key actions taken by the Board in 2024
– Approved a final dividend of 18.5p per share in
respect of 2023 and an interim dividend of 12.4p
per share in respect of the first half of 2024.
How we engaged across the Group
– Comprehensive investor programme comprising
amixture of in-person and virtual engagements
inthe UK, US and other key international markets.
– Engagements included management and Investor
Relations meetings, attendance at investor
conferences, bank-led Q&A sessions and major
tradeshows, including Farnborough International
Airshow in the UK, the Association of the United
States Army exposition in the US and Eurosatory
inFrance.
– Conducted an investor group tour of our
Barrow-in-Furness, UK, submarine production
facilities and broadcast several editionsof our
virtual technology event series.
– Held our first ever investor site visit in the
KingdomofSaudi Arabia to the King Faisal Air
Academy whichshowcased the array of training
undertaken atthe Academy.
1. Relates to the UK, Australia and Kingdom of Saudi Arabia businesses.
78 BAE Systems plc  Annual Report 2024
Directors’ report
Our communities and
theenvironment
The people who live where we work,
the environment in which we operate
and the charitable organisations
wesupport.
Why we engage
We are committed to the communities and environment in which we operate. In many locations where
wehavemajor sites we are one of the largest employers in the area and have a responsibility to support
thelocalcommunities where our people live and work both economically and socially. We also recognise
thatour operations have an impact on the environment and we have a responsibility to minimise impacts
fromouroperations. As a leading defence and security company, we are dedicated to supporting members
ofour armed forces’ communities and strengthening the STEM talent pipeline.
What’s important to them
– Employment and economic
contribution
– Education outreach and skills
development, especially for
youngpeople
– Community engagement and
delivering meaningful local impact
– ESG considerations
– Collaboration on low-emission
products
– Developing common standards,
including an approach to reduce
industry GHG emissions
– Support for our armed forces’
communities, including veterans
andmilitary families
MORE INFORMATION PAGE 49
How we engaged at Board level
– Group Chief Executive Officer provided an update
on ESG matters at each scheduled Board meeting.
– Chair of the Environmental, Social and Governance
Committee reported to the Board on the activities
of the Committee.
– Continued to monitor the Group’s sustainability
agenda and ESG strategy in conjunction with the
Environmental, Social and Governance Committee.
Key actions taken by the Board in 2024
– Chair opened the new Winston Churchill Centre
forLearning and Education at the British Normandy
Memorial, France.
– The Centre includes an education room, providing
aplace for future generations to understand
Britain’s role in the Battle of Normandy and learn
lessons for the future. Read more on page 29.
How we engaged across the Group
– Extensive education outreach programme,
including STEM ambassadors in key markets,
schoolroadshows in the UK and sponsorship of
theinternational FIRST Championship in the US.
– Continued support for local communities
throughsponsorships, donations and employee
volunteering, including supporting the Beacon
programme in Australia which is re-igniting
interestin STEM subjectsand careers at a critical
early stage and a partnership with REACT, a
UK-based disaster relief and humanitarian aid
charitythat trains teams of volunteer flood
responders.
– Sustained partnerships with armed forces charities,
including support for Legacy in Australia, the Royal
British Legion’s Poppy Appeal and The Great
Tommy Sleep Out in the UK.
Our regulators
Governmental bodies
thatoverseeindustry
orbusinessactivities.
Why we engage
We maintain constructive dialogue and relationships with those who oversee the regulations which can
impactour business.
What’s important to them
– Relevant laws and regulations
– Appropriate compliance programmes
MORE INFORMATION PAGE 52
How we engaged at Board level
– Received and reviewed legal compliance reports
from Senior Council.
– Received and reviewed correspondence from
otherregulators, including the FRC.
Key actions taken by the Board in 2024
– Chair received a letter from the FRC’s Corporate
Reporting Review team who carried out a review
ofthe Group’s 2023 Annual Report and
FinancialStatements.
– Although there were no significant findings
fromthe review, the Audit and Risk Committee
considered the FRC recommendations and
anyactions.
How we engaged across the Group
– Open and constructive engagement with various
regulators, including meetings and discussions
withUK,US and Australian regulators in support
ofefforts todrive efficient compliance, improve
bilateral and multilateral defence trade
co-operation and support our licensing strategy.
– Participation in industry association initiatives
towork with regulators to the same end.
– Regulator participation in our internal training
events and conferences and support from us as
speakers orparticipants at external conferences
and engagement events.
Our pension
schememembers
Members and trustees
ofourpensionschemes.
Why we engage
We are committed to fulfilling our obligations to current and former employees in our pension schemes. Our
Trustees engage with scheme members regularly to ensure they are informed about how we continue to do
soand ensurethat they have access toall the information they need to manage their pensionarrangements.
What’s important to them
– Member benefits
– Pension scheme fundingposition
andinvestment strategy
– Group performance
MORE INFORMATION PAGE 183
How we engaged at Board level
– Received updates from the Trustees and the
Group’s Corporate Pensions team following
transferof the management of the BAE Systems
Pension Scheme to a new provider in late 2023.
– Kept updated on the tri-annual valuation of the
UKpension funds, with the final outcome provided
to the Board in early 2025.
How we engaged across the Group
– Continued to engage with our UK members
viadedicated pensions websites, ensuring they
haveaccess to key scheme documents and
pensionsinformation.
– Newsletter made available to all members to keep
them updated and engaged in their pension planning.
– Face-to-face and virtual engagement sessions for
employee members around the UK, supported by
aseries of pension essentials videos and guides, to
help them better understand their pensions.
We also engage with other non-profit organisations and public interest groups who have a focus on business or defence and security issues
toaddress factors that can impact our business and how we operate.
79BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Applying Principles of Good Governance: The Company has applied the Principles in the
Code. Using the principal headings in the Code, the following provides details of how we have
applied those Principles and references other parts of these reports to provide more detail.
Thestatements reference the Code Principles.
Applying the 2018 UK Corporate Governance Code Principles
Principles Reference
Section 1 – Board leadership and Company purpose
A.
We have an effective and entrepreneurial Board that promotes the long-term sustainable
success of the Company, generates value for shareholders and contributes to wider society.
RESPONSIBLE BUSINESS PAGE 48
DIVIDENDS PAID AND CAPITAL
ALLOCATIONPOLICY OBJECTIVES PAGE 11
ANNUAL BOARD EVALUATION PAGE 85
B.
The Board has established the Company’s purpose, values and strategy and satisfied
itselfthat these and its culture are aligned. All directors are required to act with integrity,
leadby example and promote the culture they wish to see for the Company.
OUR PURPOSE PAGE 2
OUR STRATEGIC FRAMEWORK PAGE 12
RESPONSIBLE BUSINESS PAGE 48
GOVERNANCE FRAMEWORK PAGE 74
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE COMMITTEE REPORT PAGE 91
C.
Through the Company’s integrated strategic planning process the Board has agreed annual
and long-term strategic and financial objectives for the Company. The integrated nature of
the planning process helps ensure that the necessary resources are in place to meet those
objectives. The Board regularly reviews progress against the plan. The Company has a
comprehensive framework thatenables risk to be assessed and managed.
OUR BUSINESS MODEL PAGE 10
GOVERNANCE FRAMEWORK PAGE 74
D.
In order for the Company to meet its responsibilities to shareholders and stakeholders,
thedirectors have established a number of means through which it is able to engage
withthem in order to better understand their views and expectations.
OUR STAKEHOLDERS AND
WORK OF THE BOARD PAGE 76
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE COMMITTEE REPORT PAGE 91
E.
The Board looks to ensure that workforce policies and practices are consistent with our values
and support our long-term sustainable growth. All members of our workforce are able to
raise any matters ofconcern through our Ethics Helpline or with a local Ethics Officer.
OUR PURPOSE PAGE 2
OUR STRATEGIC FRAMEWORK PAGE 12
RESPONSIBLE BUSINESS PAGE 48
Section 2 – Division of responsibilities
F.
The Chair leads the Board and is responsible for the overall effectiveness of the Board
indirecting the Company. In doing so, she seeksto demonstrate objective judgement and
promotes a culture of openness and debate within the boardroom. The directors are provided
with accurate, timely and clear information to facilitate open and constructive Board relations.
GOVERNANCE FRAMEWORK PAGE 74
ANNUAL BOARD EVALUATION PAGE 85
G.
The Board comprises the Chair, three executive directors and eight independent non-
executive directors. There is a clear division in the roles andresponsibilities of the executive
and non-executive directors andbetween the Chair and Chief Executive which are detailed
inourBoard Charter (available on the Company’s website).
CHAIR’S GOVERNANCE LETTER PAGE 68
GOVERNANCE FRAMEWORK PAGE 74
H.
The non-executive directors have committed to having sufficient time to meet their
responsibilities. The non-executive directors provide constructive challenge, strategic
guidance, offer specialist advice and holdmanagement to account.
GOVERNANCE FRAMEWORK PAGE 74
GOVERNANCE DISCLOSURES PAGE 68
BOARD INFORMATION PAGE 69
I.
The Company Secretary supports the Board in ensuring the directors have the correct
policies, processes, information and time in order to function effectively and efficiently.
GOVERNANCE FRAMEWORK PAGE 74
ANNUAL BOARD EVALUATION PAGE 85
80 BAE Systems plc  Annual Report 2024
Directors’ report
Principles Reference
Section 3 – Composition, succession and evaluation
J.
The Nominations Committee undertakes a formal, rigorous and transparent approach to
succession planning for Board appointments. The Board oversees the development and
implementation of succession plans for directors and senior management.
Appointments andsuccession plans are based on merit and objective criteria, whilst also
promoting diversityin all forms.
BOARD INFORMATION PAGE 69
NOMINATIONS COMMITTEE REPORT PAGE 83
K.
The directors look to maintain a good combination of skills, experience and knowledge
onthe Board and on its committees. Succession plans take into consideration the lengths
ofservice of directors and the need to regularly refresh Board membership.
CHAIR’S GOVERNANCE LETTER PAGE 68
BOARD INFORMATION PAGE 69
NOMINATIONS COMMITTEE REPORT PAGE 83
L.
The Board annual performance evaluation undertaken by the Board in 2024
consideredits composition, diversity and how effectively members worked together
toachieve objectives. The evaluation included an assessment of the effectiveness
ofindividual members.
NOMINATIONS COMMITTEE REPORT PAGE 83
ANNUAL BOARD EVALUATION PAGE 85
Section 4 – Audit, risk and internal control
M.
The Board through its Audit and Risk Committee has established formal and transparent
policies andprocedures to ensure the independence and effectiveness of internal and
external auditfunctions, and the work theyundertake assists the Board in satisfying
itself as to theintegrity offinancial and narrative statements.
AUDIT AND RISK COMMITTEE REPORT PAGE 86
N.
As detailed in these reports, the directors confirm they consider the2024 Annual Report
andfinancial statements taken as a whole tobe fair, balanced and understandable and
provide the information necessary for shareholders to assess the Group’s position and
performance, business model and strategy.
DIRECTORS’ RESPONSIBILITY STATEMENT PAGE 132
O.
The Board has established procedures to manage risks. It also overseesthe risk
management and internal controlframework and determines the nature and extent
ofthe principal risks the Company is willing to take in orderto achieve its long-term
strategic objectives.
OUR RISK MANAGEMENT FRAMEWORK PAGE 57
OUR PRINCIPAL RISKS PAGE 58
GOVERNANCE FRAMEWORK PAGE 74
Section 5 – Remuneration
P.
The policies and practices of the Remuneration Committee have beendesigned to
supportour strategy and promote the long-term sustainable success of the Company.
Executive remuneration is aligned to Company purpose and values and is linked to
thesuccessful delivery of our long-term strategy.
REMUNERATION COMMITTEE REPORT PAGE 94
ANNUAL REMUNERATION REPORT PAGE 109
Q.
The Remuneration Committee has a formal and transparent procedure for developing
policyon executive remuneration and also for determining the remuneration of
directorsandsenior management. Directors are not involved in determining their
ownremunerationoutcome.
REMUNERATION COMMITTEE REPORT PAGE 94
DIRECTORS’ REMUNERATION POLICY PAGE 101
R.
The Remuneration Committee has the ability to exercise its discretion and independent
judgement when agreeing remuneration outcomes. When exercising such discretion it will
take into account Company and individual performance, and also wider circumstances.
REMUNERATION COMMITTEE REPORT PAGE 94
81BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
The Company is subject to the principles and provisions of the Code, a copy of which
is available at frc.org.uk. The Company was compliant with the provisions of the Code
throughout 2024. The following statements are made in compliance with the Code.
Compliance with the 2018 UK Corporate Governance Code provisions
Director independence
Dame Elizabeth Corley was appointed to
theBoard on 1 February 2016 and has now
been on the Board for nine years. To manage
the evolution and skills profile of the Board,
the search for new Non-Executive Directors
is well advanced. Dame Elizabeth Corley
isour most experienced non-executive
director and to ensure that we can benefit
from her deep understanding of the
Groupduring this year’s strategic review,
wepropose the extension of her tenure
untilthe end of 2025 at the latest (subject
toshareholder approval at the 2025 AGM).
This will also facilitate a smooth transition
forher committee memberships.
During our conversations on Board
succession, we considered the length of
service of the Board as a whole and how best
to ensure that we retained the right balance
of skills, experience and knowledge. We also
specifically considered the tenure of Dame
Elizabeth Corley along with the importance
of independence of mind and objective
judgement from non-executive directors.
The Board reflected on the insightful
perspectives Dame Elizabeth Corley provides
based on her corporate memory, which
coupled with her external background
andknowledge enriches Board discussions.
The Board is in unanimous agreement that
itconsiders that Dame Elizabeth Corley to
beindependent.
Dame Elizabeth Corley will step down
fromthe Audit and Risk Committee from
Monday 24 February 2025. Dr Ewan Kirk
willbe appointed to this Committee from
the same date.
Risk management and
internalcontrol statement
The Board is responsible for the oversight
ofthe effectiveness of the Group’s risk
management and internal control
framework. It has delegated responsibility
for monitoring and reviewing the
effectiveness of this framework to the
Auditand Risk Committee, which reports
tothe Board on its findings so that all
directors can take a view on the matter.
An overview of the processes used
toidentify, evaluate and manage the
principalrisks can be found on pages
55to56. Theseprocesses are an integral part
of ourgovernance and are therefore
included within the Operational Framework,
details ofwhich can be found on page 74.
The Operational Framework mandates
theOAS process, whichis owned by the
Group’s Internal Auditfunction and is one
ofthe principal processes the Board uses
inmonitoring theeffectiveness of
controlsystems.
The OAS process is designed to provide
assurance with regard to compliance
withthe policies and processes which
theOperational Framework mandates.
Itisakey element of the Group’s governance.
The Risk Management policy and the
LCMFramework direct employees and line
andfunctional leaders on the approach to
effectively managing business and project
risks. Twice a year, the line leaders for our
business and the heads of our functions
arerequired to critically analyse compliance
relative to a scoring framework, which sets
clear standards against which compliance
must be assessed. Line and functional
leaders are required to assure themselves
ofthe level of compliance for a business and
submit, as required, supporting information
and data to provide evidence of compliance.
The output from the OAS process is reviewed
by (and subject to challenge from) the Internal
Audit function relative to its understanding
of matters within particular businesses.
Theoutput from the risk management and
OAS processes is provided to the Board
andis reviewed in detail by the Audit and
Risk Committee.
The report to the directors on the output
from the risk management and OAS
processes provides granular graphical and
narrative analysis of compliance against the
requirements of the Operational Framework,
and as such is an important part of how the
Board monitors and reviews the Company’s
risk management and internal control
framework. Further details of the Board’s
monitoring and review process can be found
in the Audit and Risk Committee report on
page 86.
The risk management and internal control
framework detailed in the Operational
Framework were in place throughout the
year and the Board, having reviewed their
effectiveness, believes they accord with
theFRC’s Guidance on Risk Management,
Internal Control and Related Financial
andBusiness Reporting.
Viability statement and going concern
As required by the provisions of the Code,
the Board has undertaken an assessment
ofthe future prospects of the Group, taking
into account the Group’s current position
and principal risks. This assessment
considered both the Group’s long-term
prospects and also its ability to continue
inoperation and meet its liabilities as they
fall due over its five-year business planning
period. This can be found on page 66 of
theStrategic report.
Directors
In compliance with the Code, all
directorsaresubject to annual re-election
byshareholders. The Board considers all
ofthe non-executive directors (except the
Chair) named on pages 70 to 71 of this
reportto be independent for the purposes
of the Code. The Chair was also independent
on appointment.
The Board regularly reviews all of a directors’
external commitments to ensure that they
have sufficient time to dedicate to the
Company. Prior to making Board
appointments, theBoard considers other
demands on anindividual’s time to ensure
that, following appointment, they can meet
their Board responsibilities. Non-executive
directors are required to seek prior approval
before taking on additional external
appointments. The Board also considers
whether there are any matters that could
have a bearing on a non-executive director’s
independence pursuant to Provision 10 of
the Code. The following disclosure is made
on these matters:
82
BAE Systems plc  Annual Report 2024
Directors’ report
Nominations Committee report
Dear Shareholders
I am pleased to present this report of the
Nominations Committee and provide a
summary of our activities during 2024.
TheCommittee’s Terms of Reference
canbefound on the Company’s website
andprovide further details of the
Committee’s responsibilities.
The Committee leads the process for
appointments to Board and executive
director roles, ensures plans are in place
fororderly, well-planned succession for
executive management
1
and oversees
thedevelopment of a diverse succession
pipeline of candidates. It also makes
recommendations to the Board on
certaincorporate governance matters.
Board and succession planning
The Committee regularly monitors the
composition of the Board and its Committees
to ensure that there remains a suitable
balance of skills and experience to oversee
the delivery of Group’s strategy and
discharge each Committee’s
responsibilitieseffectively.
During the year, particular attention was
focused on succession for Dame Elizabeth
Corley, who reached a tenure of nine
yearson the Board in February 2025.
TheCommittee considered the skills
andexperience that the Board would be
losing along with the future requirements
ofthe Board. The Committee has been
working with MWM Consulting
2
to help
assist with identifying potential succession
candidates. Inaddition, in September 2024,
Lord Sedwill retired from the Board to
assistthe UK Government’s Strategic
Defence Review andgive greater time
tohisevolving parliamentary and other
commitments. Thesearch for his
replacement is also ongoing.
The Committee ensures that plans
areinplace for appropriate executive
management succession. As you would
expect, all companies must have resilience
tomaintain momentum through any
unexpected management change.
Therefore, the Committee also considers
thesuccession plans for our most senior
leaders, the Chief Executive Officer, the
ChiefFinancial Officer and the President &
Chief Executive Officer of BAE Systems, Inc.
During the year, we considered the critical
success components of these roles and
thepotential succession talent from
bothinsideand outside thebusiness.
RussellReynolds Associates
3
provided
insightinto this discussion.
The Committee must consider the specific
nationality restrictions for certain executive
roles within any succession planning.
National security considerations limit the
pool of talent available when considering
candidates for certain leadership positions.
In addition, the Special Share provisions in
the Company’s Articles of Association
require that a majority of the members
ofthe Board must be British nationals,
andthat also applies to the membership
ofBoard Committees.
These nationality requirements are factored
into the Committee’s long-term plans for
managing Board and Committee composition.
On an annual basis the Committee discusses
the senior succession candidates with the
Chief Executive. The Committee will have
also met with some of these candidates
during the year atsite visits or specific
engagements before Board meetings. Our
2024 talent review identified that our talent
pipeline is being strengthened, with greater
focus on development and clear succession
routes forkey executives below the level of
the Executive Committee. More executives
arebeing identified and developed for
specific roles and short-term emergency
cover. The Committee will continue to
oversee the Group’s executive succession
planning with the objective of building
adiverse and inclusive talent pipeline.
The Committee ensures
that plans are in place for
orderly, well-planned
succession for executive
management.
Cressida Hogg
Chair of the Nominations Committee
 MEMBERS DURING 2024 MEMBER SINCE
Cressida Hogg (Chair) November 2022
Nick Anderson November 2020
Crystal E Ashby September 2021
Angus Cockburn November 2023
Dame Elizabeth Corley February 2016
Jane Griffiths April 2020
Ewan Kirk June 2021
Stephen Pearce June 2019
Nicole Piasecki June 2019
1. Executive management refers to members of the Executive Committee and the Company Secretary.
2. MWM Consulting is an executive search agency which has no other connection with the Company
oranyindividual director.
3. Russell Reynolds Associates is an executive search and leadership advisory firm. It has no other
connectionwith the Company or any individual director.
83BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Nominations Committee report continued
The Nominations Committee’s year
– Discussed succession plans for
executiveroles.
– Considered non-executive director
succession planning.
– Discussed the role specification and
candidate profile for future non-executive
director search.
– Discussed senior succession plans.
– Discussed non-executive director planning
for the medium to long term.
– Considered the composition of the Board
Committees.
Director external appointments
Directors are permitted additional external
appointments and we have a clear process
forevaluation and Board consideration
ofnew roles. As part of the nominations
process, the role is reviewed forany actual
orpotential conflict of interestand, if any
such conflict arises, whether this could be
suitably managed. Thetime commitment is
also assessed to determine if the role would
impact the director’s ability to properly fulfil
their dutiesas a director of BAE Systems.
On an annual basis, the Committee
considersall non-executive directors’ time
commitments to ensure that there are no
concerns with overboarding. This review
considers the number of appointments,
thescope and size of the company in which
the position is held, as well as the most recent
published guidelines and recommendations.
The Board remains confident that all Board
members continue to have sufficient time
todedicate to their duties.
Board diversity
The Board recognises that diversity is an
important factor in its effectiveness and
strives to maintain a diverse Board, which
includes, among other things, an appropriate
balance of gender, ethnicity, skills, knowledge
and experience.
The Board’s Diversity and Inclusion policy,
which the Committee routinely reviews,
outlines the approach to diversity and
inclusion for BAE Systems’ Board of
directorsand is available to viewon
theCompany’s website.
The Committee regularly considers the
composition of committees, including
theneeds for particular attributes, skills
andexperience, when undertaking
non-executive search activities. The
membership of the Board’s Audit and Risk,
Remuneration and Nominations committees
is drawn from the wider membership of the
Board and therefore themembership of
these bodies is broadly aligned with the
Board’s Diversity and Inclusion policy.
Although the Committee strives to maintain
the targets set within the Board’s Diversity
and Inclusion policy, it must also take full
account of the Company circumstances and
the unique national security requirements to
which the Company must adhere. Further
information on the Board’s approach to
diversity can be found on pages 72 to 73.
Cressida Hogg CBE
Chair of the Nominations Committee
84
BAE Systems plc  Annual Report 2024
Directors’ report
Delivery against the 2024 ambitions
From the 2023 Board evaluation, certain areas of focus were identified. Progress in these areas is provided below.
Area of focus from the 2023 evaluation Progress
Optimising the scheduling of formal
andinformalBoard time
To enhance the scheduling of Board meetings, and diary management for directors, the Board meeting schedule
isnow managed over a five-year horizon. Alongside this, a two-year forward agenda planner is used for known
items. In addition, the time allocated to Board and Committee meetings has been reviewed and will remain under
observation to ensure we maintain the correct balance.
Further, additional informal Board dinners were hosted around offsite meetings, which were attended by Executive
Committee members, senior management and other staff supporting the offsite meeting/site visit. Site visits also
provided opportunity for directors to spend more time together in a more relaxedenvironment.
Giving more time to discussing
seniorexecutivedevelopment
andsuccessionplanning
Senior executive development and succession planning featured regularly on the Nominations Committee agenda
in 2024.
Greater insight into how new
technologiesarelikely to impact the
futuredevelopment ofthebusiness
The Board has had several ‘teach-ins’ and focused discussions on the impact of new technologies throughout
theyear.
Reviewing the Board composition
forthelongerterm
At the start of the year, the Nominations Committee reviewed/discussed the current and future Board composition
with particular focus on those non-executive directors nearing the end of their tenure and the skills needed on
theBoard for the longer term. Further discussion on this topic was held during the year, along with discussion
onexecutive director succession.
Board evaluation
2024 Board evaluation process
The Board conducts an annual evaluation
ofthe effectiveness of the performance
ofthe Board, its Committees, the Chair
andindividual directors, with the assistance
of anexternal independent facilitator
atleastevery third year.
In 2024, the annual evaluation of the
effectiveness of the Boardand its
Committees was conducted internally.
TheChair led the process which was facilitated
by theCompany Secretary. We circulated
questionnaires via an electronic platform,
with responses anonymised and the
conclusions discussed by the Board.
Inaddition, I held one-on-one discussions
witheachBoard member to gather views
onBoard performance.
The internal evaluation considered a number
of matters, including the composition of
theBoard and its committees, culture, the
effectiveness of meetings and the quality
ofinformation flow to the Board. From my
one-on-one discussions, I was able to consider
whether each director continues to contribute
effectively. No director was involved in the
review of their own individual performance.
Each of the directors is considered to be
aneffective member of the Board and,
accordingly, the Board recommends to
shareholders the re-election of the
directorsstanding at the 2025 AGM.
In my capacity as Chair of the Board, my
performance was also evaluated, with
questions covering areas such as my
effectiveness both inside andoutside of the
Board meetings, my interactions with internal
and external stakeholders, and key strengths.
The Company Secretary collated the Chair
evaluation results and shared these with the
SeniorIndependent Director, Nicole Piasecki.
After engaging withother Board members,
Nicole Piasecki discussed the feedback
withme.
Evaluation outcome
The Board and Committee member feedback indicated that the evaluation was objective
andrigorous and that the Board and its Committees are considered to operative effectively.
Key topics were discussed for the year ahead for the Board and each Committee, based on
director feedback. Feedback also indicated that there are good personal relationships and
ahigh degree of mutual respect among directors.
Areas of focus for 2025 Proposed action
People The Board agreed to continue its focus on talent in 2025,
with deeper discussion on talent management and
diversityalong with Executive Committee and senior
management succession.
Strategy The updated process supporting the strategy discussions
was considered to work well, so will be continued in 2025.
Specific areas of discussion for the strategy agenda were
alsoagreed.
Site visits Positive feedback was received on site visits undertaken
in2024, which were considered to enhance the relationships
between directors and provide opportunities forworkforce
engagement. The importance of site visits aspartof the
director onboarding process was also recognised. We will
look to build on our current process and,where possible,
align site visits to Board calendar items.
1
Questionnaire agreed and distributed electronically to Board members.
2
One-on-one discussions between the Chair and Board members.
3
Outcome of questionnaires provided to the Board and Committee
members and discussed at a meeting of the Board in December 2024.
4
Action plan agreed following discussion of the reports.
85BAE Systems plc  Annual Report 2024
Additional informationFinancial statements
GovernanceStrategic report
Audit and Risk Committee report
The Committee’s
namehas changed
inorder to reflect the
Committee’s continued
focus on the Group’s
riskmanagement
andinternal control
environment.
Stephen Pearce
Chair of the Audit and Risk Committee
 MEMBERS DURING 2024 MEMBER SINCE
Stephen Pearce (Chair) January 2020
Angus Cockburn November 2023
Dame Elizabeth Corley January 2020
Jane Griffiths January 2024
Dear Shareholders
I am pleased to provide you with an
overview of the Audit and Risk Committee’s
main activitiesand key areas of focus during
theyear. On page 90 there is an overview of
the areas we have reviewed and discussed
during the year. Aspart of this report, I will
give a summary ofsome of our discussions.
Following the adoption of new Terms
ofReference (which can be found on the
Company’s website), the Committee’s
namehas changed in order to reflect
theCommittee’s continued focus on the
Group’srisk management and internal
control environment. In addition to our
regular reviews of the risk and internal
control framework, we also oversee the
work and effectiveness of the Group’s
internal and external auditors, as well as
undertake, on behalf of the Board, a more
detailed review of the Group’s financial
andnon-financial disclosures.
Committee composition
In accordance with the Code, all members
ofthe Audit and Risk Committee are
independent and the Committee Chair has
recent and relevant financial experience.
Our biographies on pages 69 to 71 provide
asummary of our skills and our experience,
which highlights that all Committee members
have the necessary skills, and financial
literacy, to effectively discharge ourduties
asan Audit and Risk Committee.
Meeting processes
We receive regular updates on reporting
(financial and non-financial, including ESG
and other climate-related disclosures), as
well as on external and internal auditing,
internal control and risk management,
ethicsand compliance matters.
Before each meeting, I have a pre-meeting
inorder to ensure that the key areas of focus
are properly reviewed and discussed during
the Committee meeting. I meet with the
Chief Financial Officer, the Internal Audit
Director, the Group Financial Controller,
theAudit Partners from Deloitte LLP and the
Deputy Company Secretary (the Committee
Secretary). In and outside of the meeting
cycle, I maintain regular conversation
withthe Internal Audit Director and the
AuditPartners.
In 2024, we held five formal meetings and
one informal meeting. Our formal meetings
are attended by the Board Chair, the Chief
Executive, the Chief Financial Officer, the
Group General Counsel, the Internal Audit
Director, the Group Financial Controller
andthe Audit Partners. After three of
thesemeetings, we held meetings without
management present for discussion with
theInternal Audit teams and Audit Partners.
Wealso met over an informal dinner, wherein
we discussed key assurance matters with
Internal Audit teams and AuditPartners.
Depending on the matters to be discussed,
other senior executives are invited to attend
our meetings to provide subject matter
expertise and further insight.
After each Committee meeting, I report
tothe Board on the Committee’s activities,
the key matters discussed and any
recommendations from the Committee.
Corporate governance
Over the past few years, the Board has
closely monitored the proposed changes
tothe Code. On behalf of the Board,
theCommittee has regularly reviewed
theproposed Code changes in greater
depth, particularly those in relation to
RiskManagement and Internal Controls
andthe Audit Committees and the External
Audit: Minimum Standard. In addition to our
annual deep dive on Corporate Governance
matters, which took place in November,
during various points ofthe year, we
received updates from the management
team on the work being undertaken to
ensure the Group’s readiness to comply
withthe new Code.
In preparation for full compliance with
thechanges to the Code, the Committee
focused on the output of the management
team’s review, which examined the Group’s
existing processes against the new Code.
Wewere provided updates from the
workstreams which were established in
order to identify, implement and steer
progress against key actions in readiness
forthe Code’s changes in 2025 and2026.
With the enactment of the Economic Crime
and Corporate Transparency Act 2023, the
Committee sought to further understand
the Group’s obligations in respect of fraud
monitoring and mitigation. As a result of the
synergies with governance, risk and internal
control matters, the Group has sought to
take a holistic approach to its processes and
as a result the Committee has reviewed
these matters in tandem.
Progress was made within theyear and,
during 2025, the Committee will continue to
review and monitor the Group’s approach.
Risk management and internal controls
The Group’s Risk Management policy and
associated internal control framework are
designed to manage, rather than eliminate,
The Statutory Audit Services for Large Companies Market Investigation (Mandatory
Useof Competitive Tender Processes and Audit Committee Responsibilities) Order 2014
The Company has complied with the Statutory Audit Services Order issued bythe UK
Competition and Markets Authority for the financial year ended 31 December 2024.
86
BAE Systems plc  Annual Report 2024
Directors’ report
the risk of failure to achieve its strategic
objectives. It can only, therefore, provide
reasonable and not absolute assurance
against material misstatement or loss.
A key focus for the Committee in 2024
wasthe oversight of the evolution and
maturation of the Group’s business
riskmanagement process. During the
year,we received updates on the progress
ofvarious risk and internal controls
improvements and deep dived into these
areas. We discussed, in detail, the changes
tothe process introduced in 2024 and
enhancements planned for 2025.
The outputs of the risk review and
Operational Assurance Statement (OAS)
processes are key ways in which the
Groupobtains assurance on the efficacy
ofthe risk management and internal
controlframework.
An overview of the Group’s risk
management process and principal risks
isprovided on pages 55 to 65 of this
AnnualReport.
As part of our responsibilities, we oversee
the effectiveness and operation of the
relevant policies, standards and procedures.
These are essential to the work undertaken
by the Committee and underpin our ability
to seek assurance that the Annual Report
and Financial Statements are prepared in
accordance with applicable standards.
Climate-related financial reporting
To stay abreast of developments,
weregularly receive updates from the
management team on various reporting
regulations, including global initiatives
andclimate-related reporting regulations,
inrelevant jurisdictions that could impact
theGroup.
The Committee is responsible for the
oversight of the internal and external
assurance processes in regard to ESG
data,including the sustainability agenda-
related disclosures that are linked to the
financial statements, which includes TCFD.
We consider the impact of climate-related
transition activities and physical risks on
financial reporting. We judged there to
beno material impact on the Group’s
Consolidated financial statements for the
year ended 31 December 2024 and we will
continue to closely review this position.
Readmore on page 150.
External audit
Following a tender process, Deloitte LLP was
appointed as the Group’s external auditor
atthe 2018 Annual General Meeting and
hasnow completed seven years, the second
with lead Audit Partner Claire Faulkner.
The Committee regularly reviews the role
ofthe external auditor and the scope of
itswork, and receives reports from the
external auditor which include challenge
ofmanagement assumptions, management
observations and responses, and progress
ofaudit activities. During the year,
Deloitteshared their perspective on
keyprogrammes and contracts across
thebusiness, challenging judgements
impacting revenue and margin recognition.
The Committee reviewed and agreed the
scope of the external audit plan in respect
ofthe auditors’ review of the half-yearly
financial statements, and of their audit of
thefull-year financial statements, taking
intoconsideration key audit risks and other
particular areas of focus for the Group.
Wealso reviewed and approved the fees for
this work and the auditengagement letters.
 ASSESSING THE EFFECTIVENESS OF EXTERNAL AUDIT
Who we surveyed to inform our assessment on the effectiveness of the Group’s External Auditor
What we surveyed
Outcome
The Committee noted that the output of the review was broadly positive and consistent with prior years. Participants
feltthattheexternal auditor provided robust and constructive challenge and overall delivered an effective audit.
On the basis of the review, following the 2024 year-end audit, the Committee proposed to the Board that it
recommendsthatshareholders support the re-appointment of Deloitte LLP at the 2025 AGM.
Senior Finance Executives
Partners &
Audit Teams
Communication
& Reporting
Planning Scope
& Execution
Challenge
& Insight
Internal Audit Director
87BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Audit and Risk Committee report continued
Auditor independence and effectiveness
We oversee the relationship with the
external auditor and regularly assess their
effectiveness to ensure that they retain
theirindependence and objectivity.
As part of this process, we formally consider
when it would be appropriate to complete a
competitive tender process for the external
audit. We do so in line with the Statutory
Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee
Responsibilities) Order 2014, concerning the
frequency and governance of tenders for
theappointment of the external auditor.
The effectiveness of the external auditor was
assessed using a formal questionnaire that
was distributed to Audit and Risk Committee
members and senior management. This
questionnaire required consideration of
performance areas that could be focused on
by the auditor and areas where the auditor
was meeting expectations. Senior
management received responses and
comments from the questionnaire and
consolidated them into a report, which the
Audit and Risk Committee used to facilitate
adiscussion in February 2025.
The Committee concluded that Deloitte
remained effective in its role as external
auditor. In view of this, and having considered
the continued objectivity, independence and
effectiveness of the auditors, the Committee
considers it to be in the best interests of the
Company’s shareholders for Deloitte LLP to
remain as external auditor for the upcoming
financial year. The scope and output of
ourannual review of the external auditor’s
independence and effectiveness is
discussedon page 87.
We will continue to review the effectiveness
and independence of Deloitte LLP as
external auditor and will ensure that an audit
tender is conducted no later than the 2028
financial year.
Non-Audit Services policy
We maintain a policy on non-audit services
which is aligned to the FRC’s 2019 Revised
Ethical Standard of Permitted Audit-Related
and Non-Audit Services. The policy
prohibitsthe auditor from undertaking
certain activities and places restrictions
ontheemployment of former employees
oftheauditor.
The policy permits the provision of audit-
related services and permitted non-audit
services up to limits that are pre-approved
bythe Committee, with specific Committee
approval required beyond such limits.
Assuch, these matters were approved by
theCommittee and were compatible with
the general standard of independence for
auditors. Prior to approving any non-audit
work, the Committee considered the nature
of the services and concluded that the
provision of these services did not impair
theindependence of the external auditor.
Further information about the audit and
non-audit fees for 2024 is disclosed in note 3
to the Consolidated financial statements on
page 157.
Internal audit
The Group’s Internal Audit function is
independent and has no responsibility
foroperational business management.
Through its assurance activities, it is able
toindependently review the effectiveness
ofinternal control systems and processes.
The Internal Audit Director (whose
appointment is a matter reserved for
theCommittee) and the VP Internal,
BAESystems, Inc. attend Committee
meetings. TheInternal AuditDirector
provides regular reports tothe Committee
on the assurance of theGroup’s risk
management activities, internal controls
andcorporate governanceframework.
The scope and authority of the Internal
Auditfunction is defined within its charter,
which the Committee reviews annually.
Internal Audit’s activity is generally guided
by its Internal Audit plan, which reflects
keydevelopments and risks in the Group.
The Committee reviews and approves the
scope of the Internal Audit plan, as well as
any adjustments, and we receive updates
onthe execution of the Internal Audit
plan,relevant findings and enhancement
opportunities and remediation plans.
The effectiveness of the Internal Audit
function is monitored regularly by a variety
of inputs including the quality and content
of ongoing Internal Audit reports received,
interactions with the Internal Audit Director,
and the outputs of the bi-annual OAS.
Taking all these elements into account,
theCommittee concluded that Internal
Audit continued to be effective.
Financial statements
andnarrativereporting
As in previous years, the Committee
reviewed all significant issues concerning
theAnnual Report, which include the
goingconcern and viability statements.
Inconsidering the Company’s Annual Report,
the Committee assessed whether the report
was fair, balanced and understandable and
also whether it provided the information
necessary for shareholders to assess the
Group’s position and performance,
businessmodel and strategy.
In order to make this determination, we
received updates on the internal verification
processes which had taken place and
usedthat to assist our assessment of the
disclosures made within the Annual Report.
We also received early sight of the draft
Annual Report and Financial Statements,
inadvance offinal review and sign-off by
theBoard, allowing us the opportunity to
consider theAnnual Report as a whole.
After careful review and consideration of
allrelevant information, the Committee was
satisfied that, taken as a whole, the 2024
Annual Report and Financial Statements
areconsidered to be fair, balanced and
understandable and we therefore affirmed
this view to the Board.
The Committee also agreed the parameters
of, and subsequently reviewed, the reports
which supported the going concern
statement (see page 67) and the statement
on the Board’s assessment of the prospects
of the Group (see the viability statement
onpage 66).
The assessment of the going concern
andthe directors’ viability statement is
underpinned by assessments of reasonably
plausible, but severe, downside scenarios
related to the Group’s principal risks.
Theassessment of various scenarios
includesthe impact on the future cash
flows,profitability, financial covenants,
solvency and liquidity of the Group.
Aspartof this process, we also considered
the period covered by the viability
statementand we continue to be of
theviewthat a five-year period remains
themost appropriate timespan for the
Group, given the business planning cycle
andthe long-term nature of a number
oftheGroup’s programmes.
 OVERVIEW OF THE PROCESS TO ENSURE THAT THE COMPANY’S ANNUAL REPORT, TAKEN AS A WHOLE, IS FAIR, BALANCED AND UNDERSTANDABLE AND
PROVIDESINFORMATION NECESSARY FOR SHAREHOLDERS TOASSESS THE GROUP’S POSITION ANDPERFORMANCE, BUSINESS MODEL AND STRATEGY
1. Fulsome guidance issued to all the contributors at an operational level.
2. A verification and certification process dealing with the factual content of the reports.
3. Thorough reviews undertaken at different levels in the Group that aim to ensure consistency and overall balance.
4. A comprehensive review by the directors and the Executive Committee.
88 BAE Systems plc  Annual Report 2024
Directors’ report
During the year, the FRC’s Corporate
Reporting Review (CRR) team carried out
areview of the Group’s 2023 Annual Report
and Financial Statements as part of its
annual review of corporate reporting. The
Committee received and reviewed the final
report from the CRR team which identified
no significant findings, with no substantive
questions or queries raised.
The Committee considered the
recommendations provided by the CRR
teamwhen preparing this Annual Report
and notes that the FRC’s review does not
provide assurance that the Annual Report
iscorrect in all material respects as the
FRC’srole is not to verify information
provided, but to consider compliance
withreporting requirements.
The principal areas of judgement considered
concerning the 2024 financial statements
were as set out below.
Margin recognition
The estimation of contract margin and the
level of revenue and profit to recognise in a
single accounting period requires the exercise
of management judgement. The Committee
reviewed key estimates and judgements
applied in determining the financial status
ofthe more significant programmes.
Pensions
Accounting for pensions and other post-
employment benefits involves making
estimates when measuring the Group’s
retirement benefit obligations. These
estimates require assumptions to be made
about uncertain events, such as discount
rates, inflation rates and longevity. As at
31 December 2024, a number of the Group
pension schemes remain in an accounting
surplus. The Group has recognised the
surpluses on the basis that the future
economic benefits are unconditionally
available to the Group. These were
recognised after deducting a 25%
withholding tax, which would be levied
priorto the future refunding of any surplus
and were presented on a net basis as this
isnot deemed to be an income tax of the
Group. We reviewed this presentation and
concluded this estimate is appropriate based
on the Group’s ability to access its defined
benefit surpluses.
We reviewed the methodology used
toallocate a proportion of the net post-
employment benefit surpluses to equity
accounted investments and concluded
thatthis continues to be appropriate
withreference to agreement between
theCompany and the retirement benefit
schemes. We also considered the disclosures
in respect of the sensitivity of the surplus
tochanges in these key assumptions
(seenote 24 on page 183).
Taxation
Computation of the Group’s tax expense
andliability, the provisioning for potential
tax liabilities and the level of deferred tax
asset recognition are underpinned by
management judgement and estimation
ofthe amounts that could be payable.
Although the Board determines the tax
policy, we reviewed the Group’s tax strategy.
Twice during the year, we reviewed the
Group’s tax expense and tax provisions, and
discussed these withthe Group Tax Director.
Ball Aerospace acquisition and
integration
Following the successful completion of
theBall Aerospace acquisition in February
2024, the Committee spent time assessing
Ball Aerospace’s integration into the wider
Group. This included compliance with the
Operational Framework, accounting policies
and methodologies, the restructuring
provisions and the key issues and
judgements resulting from the acquisition.
The Committee reviewed the purchase
priceallocation of the acquisition, which
amounted to £4,352m, given the complexity
of the assessment and the application of
management’s judgement involved in the
allocation. This review included the valuation
of intangible assets acquired, such as
customer relationships, and the subsequent
residual goodwill balance.
The Committee also received reports
ontheBall Aerospace acquisition from
Internal Audit, which focused on the impact
of the acquisition on the Group’s overall
control environment and closely monitored
the integration plan that was implemented.
TheCommittee also received a report
fromthe external auditor regarding audit
procedures performed in respect of the
BallAerospace acquisition accounting.
Stephen Pearce
Chair of the Audit and Risk Committee
89
BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
The Audit and Risk Committee’s year
1
Audit and Risk Committee report continued
– Reviewed the Annual Report and Financial
Statements and specific disclosures,
including viability and going concern,
forrecommendation to the Board.
– Received a presentation from the Group
Financial Controller and Group Treasurer
inrespect of work supporting the viability
and going concern statements.
– Considered the accounting, financial
control and audit issues reported by
theexternal auditor that flowed from
theyear-end audit work and half-year
review work.
– Reviewed the effectiveness of the
externalaudit process.
– Received a report from the Group
TaxDirector.
– Reviewed external auditor
independenceand nature and value
ofnon-audit services.
– Agreed the external audit
engagementletter.
– Considered outputs from the six-monthly
OAS reviews.
– Agreed final iteration of the 2024
InternalAudit programme.
– Reviewed the Company’s compliance
withESG reporting, including compliance
with TCFD.
– Considered development of ESG-related
disclosures, including climate change
andTCFD reporting requirements.
– Agreed the 2024 external audit plan
andscope.
– Agreed external audit fee proposal.
– Considered any emerging accounting
issues prior to the half year.
– Reviewed the Non-Audit Services policy.
– Reviewed the nature and value of
non-audit services.
– Reviewed the ESG assurance map.
– Received an update on the assurance
workundertaken by Deloitte following
theBall Aerospace acquisition.
– Reviewed the financial statements
andspecific disclosures, including
goingconcern, for recommendation
totheBoard.
– Conducted a deep dive into the Group’s
business ethics and received a report that
includes key indications in relation to
whistleblowing reports.
– Undertook a deep dive on the proposed
changes to the Code and the implications
of the UK Economic Crime and Corporate
Transparency Act 2023.
– Reviewed the effectiveness of the risk
management and internal control
framework and the overall risk profile
ofthe Group (including emerging risks),
and ratified the Group’s principal risks
forrecommendation to the Board.
– Reviewed improvements made to risk
management processes.
– Considered any emerging accounting
issues prior to the year end.
– Considered the external auditor’s
controlsreport.
– Considered output of the Internal
AuditDirector’s report.
– Considered and approved the Internal
Audit strategy, charter and mandate.
– Received a presentation from VP,
InternalAudit, for the US businesses.
– Received a report on export control
compliance from the Chief Counsel
ExportControl and Compliance.
– Set the parameters for work
supportingthe viability and going
concernstatements.
– Received technical accounting and
reporting updates.
– Considered and approved the
2025Internal Audit programme.
1. The Committee holds a quarterly session with the Internal Audit Director and external auditor without management present. The Audit Committee Chair
alsomeets with the Chief Financial Officer, the Internal Audit Director and the external auditor on an ad hoc basis.
90 BAE Systems plc  Annual Report 2024
Directors’ report
Environmental, Social and Governance Committee report
Dear Shareholders
I am pleased to present this report of the
Environmental, Social and Governance
Committee and provide a summary of
ouractivities during 2024.
The Committee provides oversight of the
management of climate, social, safety and
business responsibility matters, including
review of progress against objectives and
targets. OurTerms of Reference can be
found on theCompany’s website and
provides further details of the Committee’s
responsibilities.
At each meeting, we reviewed and
challenged the updates from Executive
Committee members and senior leadership,
against delivery of the Group’s ESG
programme andvarious initiatives. During
the year, we met four times and, after each
Committee meeting, I reported to the Board
on the Committee’s activities, the key
matters discussed and any
recommendations fromthe Committee.
Environment and climate transition
Environmental factors, including those
related to climate change, impact two of
theGroup’s principal risks. As such, climate
transition andclimate resilience remained
animportant area of discussion during our
meetings in 2024.
Following updates from the Environment,
Climate & Infrastructure Director, we were
able to better understand and provide
insight on the impact ofclimate change
onthe Group’s activities. We also discussed
the various transition risks and opportunities
and also considered areas such as material
scarcity, supplier vulnerability and emerging
regulatory disclosures.
We are pleased that the Group is making
good progress around our workstream of
building climate resilience. As reported in the
Group’s half-yearly results announcement,
our renewable energy strategy is aligned
with current operations and future business
growth. Further detail can be found on
pages 49 to 51.
Workplace environment
We discussed the various initiatives that
were undertaken throughout the year,
tocreate and maintain a positive and
welcoming atmosphere, in line with
theoverall culture.
Strategic workforce planning was a continued
area of focus for the Board and, at the
Committee level, the workplace environment
remained one of our continued priorities.
Safety, wellbeing and the approach to
inclusion are integral to the Group’s employer
of choiceapproach. The performance on
DEIis a non-financial component of the
annual incentive plan for senior executives.
The objectives operate as a downward
underpin to the incentive, reducing incentive
payments if performance is not at the
expected levels. This is to ensure we are
ableto attract and retain talent, in order
tomeet our strategic workforce planning
requirements. We set, measure and
determine the level of performance
achievedagainst all ESG objectives
andmakea recommendation to the
Remuneration Committee.
Employee and product safety have long
been key areas of focus for the Group,
theBoard and this Committee.
During the year, the Committee reviewed
the Group’s global safety performance and
the safety focus for 2024. We discussed
indetail, the development of the ‘Life
SavingRules’, sponsored by the Executive
Committee and the deployment of an
integrated safety, health and environment
risk assessment platform to business units.
Our Safety, Health and Wellbeing Director
also presented safety initiatives tothe
Committee, which we supported.
We were disappointed with the increase
inrecordable injuries during the year.
In2024, the recordable injury rate was
459which was an increase of 8% and
majorinjuries were 47, an increase of 18%.
At our Committee and Board meetings
wediscussed, the improvements in visible
leadership and the various initiatives
beingundertaken to improve safetyculture.
The incidents at Glascoed andBarrow-in-
Furness, both in the UK, werediscussed in
detail in Boardmeetings.
We will continue to pay attention to the
learnings from safety events and review
processes around the Group’s use of
leadingand lagging safety indicators,
andthe sharing of these learnings across
thebusiness.
 MEMBERS DURING 2024 MEMBER SINCE
Jane Griffiths (Chair) September 2020
Nick Anderson November 2020
Crystal E Ashby September 2021
Dame Elizabeth Corley September 2024
Stephen Pearce January 2024
Lord Sedwill Retired September 2024
91BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Environmental, Social and Governance Committee report continued
The supply chain
In the year, the Committee was updated
onthe resilience of the supply chain,
withaparticular focus on decarbonisation,
modern slavery and human rights, and
riskmanagement and assurance.
The Committee reviewed the Group’s
activity in relation to global modern slavery
legislation and monitored the Procurement
team’s progress with its ongoing review of
the Company’s ‘Suppliers’ Principles’. These
Principles set out best practice, responsible
and sustainable expectations for suppliers
and are scheduled to be updated in 2025.
Communities
The communities in which we operate
andthe Group’s impact are regularly
reviewed by the Committee. During our
meetings, we discuss the community impact
and investments being made acrossthe
Group. £4.8m was invested in STEM
education initiatives, £2.9m donated in
support of armed forces charities, £1.3m
provided to local community projects and
£448k contributed to heritage projects.
Jane Griffiths
Chair of the Environmental, Social
andGovernanceCommittee
Strategic workforce
planning was a
continued area of focus
for the Board and, at the
Committee level, the
workplace environment
remained one of our
continued priorities.
The Environmental, Social and Governance Committee’s year
– Received an update on the resilience
oftheGroup’s supply chain.
– Reviewed workplace safety and wellbeing.
– Received an overview of the Code
changesand the Group’s approach
toanti-corruption compliance.
– Discussed the progress of the Group’s
environment and climate transition –
decarbonisation programme.
– Performed a deep dive on the Group’s
safety, health and wellbeing performance
to date, with a particular focus on the
BAESystems, Inc. SMS business.
– Received an update on the Group’s social
value activities, particularly in respect of
skills and education, communities and
employee wellbeing.
– Reviewed the 2023 key strategic objectives
and approach for 2024.
– Considered the initial proposed objectives
and annual incentive targets for 2024.
92
BAE Systems plc  Annual Report 2024
Directors’ report
Innovation and Technology Committee report
Throughout the year,
theCommittee focused
considerably onthe
impact of digital
disruption in the
defencesector.
Ewan Kirk
Chair of the Innovation and
TechnologyCommittee
 MEMBERS DURING 2024 MEMBER SINCE
Ewan Kirk (Chair) October 2021
Nick Anderson October 2021
Dame Elizabeth Corley May 2022
Nicole Piasecki October 2021
Dear Shareholders
I am pleased to present this report of the
Innovation and Technology Committee and
provide a summary of our activities during
2024. The Committee seeks to promote
thesuccess of the Group through the
effective oversight of the application of
science, engineering and technology and
thesuccessful exploitation of its intellectual
property and know-how in pursuit of its
business and commercial goals. Our Terms
ofReference can be found on the Company’s
website which provides further details of
theCommittee’s responsibilities.
The Committee balances its time between
formal meetings and site visits, and updates
the Board on important insights from our
interactions and discussions with employees
during our site visits.
Digital
Throughout the year, the Committee
focused considerably on the impact ofdigital
disruption in the defence sector, aswell as
the emerging digital technology solutions
required to effectively meet our customers’
evolving needs. We heard from the Chief
Technology & Information Officer (CTIO) and
the Technology Director about the Group’s
landscape, future trends, customer priorities
and key technology drivers for theGroup’s
global customers.
During the year, we reviewed how the
combination of geopolitical, economic and
technology factors is changing theroleof
established defence companies, as well as
our current capabilities andanticipated
future trends.
Site visits
At the outset of the Committee’s
establishment, we agreed that the
approachtaken in respect of format would
likely evolve over time. This is due to the
novel nature of this Committee and our area
of focus. We are cognisant of our mandate
toundertake our work in a way that best
promotes the long-term success of the
Group and, annually, review the structure
ofmeetings, richness of conversations and
make improvements to our ways of working.
As a result of our reflections, in 2024 we
decided to take a site visit-led approach to
our meetings. We believe that the informal
approach to site visits and a more agile
nature of meetings would allow for the
Committee, and other Board members,
toget a better feel for key technologies,
innovation culture and the alignment
withthe Group’s strategic priorities.
In 2024, the Committee visited the
Submarines business in Barrow-in-Furness,
UK. I also visited our Maritime Services
business in Portsmouth, UK. We discussed
the technology strategy for each area, which
includes planned technology investment,
product enhancement and market
positioning. Other directors and members
ofsenior management were invited to
attend thesesessions when appropriate.
Ewan Kirk
Chair of the Information and
TechnologyCommittee
The Innovation and Technology Committee’s year
– Discussed the technology strategy
forourSubmarines and Maritime
Servicesbusinesses.
– Informal lunches with employees
tounderstand and hear first-hand
experiences.
– Product demonstrations, de-briefs
andtours.
– Deep dive into the impact of digital
disruption.
– Meet and greet with employees
duringthe site visits.
93
BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
– Group underlying EPS up 10%.
– Free cash flow of £2.5bn in 2024.
– Group order intake of £33bn.
– TSR of 145% over three years.
Remuneration Committee report
 MEMBERS DURING 2024 MEMBER SINCE
Nicole Piasecki (Chair) May 2022
Angus Cockburn January 2024
Dame Elizabeth Corley February 2016
Ewan Kirk March 2023
Contents
Remuneration Committee report 94
Quick read summary 98
Proposed new Remuneration policy 101
2025 remuneration framework 108
Annual remuneration report 109
Dear Shareholders
On behalf of the Board, I am pleased to
present the Remuneration Committee’s
report for 2024.
The Remuneration Committee is
responsiblefor determining the policy for,
and setting, directors’ remuneration to
support strategy and sustainable success.
At our 2025 AGM, we will be asking
shareholders to vote on three
remunerationresolutions:
– Directors’ Remuneration Report
whichsummarises performance and
theresulting remuneration outcomes
for2024, including decisions made by
theCommittee in respect of the year
(explained on pages 109 to 125);
– Remuneration policy, which outlines
theremuneration framework proposed
toapply from 2025, if approved by
shareholders at the 2025 AGM, with
rationale for the proposed changes
(setout on pages 101 to 107); and
– Long-Term Incentive Plan (LTIP) rules,
updated to facilitate changes proposed
bythe new Remuneration policy
(furtherinformation will be provided in
the Notice ofAnnual General Meeting).
A ‘quick read’ section summarising each
remuneration element and the performance
outcomes for the year, withresulting total
remuneration for eachexecutive director
isshown onpages98 to 100.
Pay and performance in 2024
BAE Systems has delivered another year of
strong operational and financial performance,
delivering significant shareholder returns.
Within this context, the Committee has
determined the following outcomes for
theannual bonus and long-term incentive
plans for performance periods ended
31 December 2024.
Annual bonus
75% of executive directors’ annual bonus
opportunity is determined by financial
performance, and 25% by theachievement
of key strategic objectives.
The financial performance measures and
targets are set in line with the IBP, around
which an appropriate range is set for
threshold (belowwhich no bonus is paid)
and stretch (at which maximum bonus is
paid) to represent sufficient challenge
without motivating excessive risk-taking.
The2024 targets were set at the beginning
of the year but revised to reflect the
February2024 acquisition of Ball Aerospace
(now the SMS business) and the partial
disposal of the Group’s partial shareholding
in Air Astana.
For 2024, the Group financial outcomes
exceeded stretch and most of the key
strategic objectives were fully achieved.
TheCommittee considered these formulaic
outcomes in the context of overall business
performance. In view of the increase in
recordable injuries during the year (as
reported in the Environmental, Social and
Governance Committee report on page 91),
the achievement of key strategic objectives
for each of the executive directors have been
reduced. The annual bonus outcomes are
around 98% of maximum (see page 112),
with one-third of the bonus amounts
deferred into shares for the next three years.
Long-term incentive
Performance Shares were granted to
executive directors and other senior
executives in 2022, with vesting dependent
upon performance over the three-year
period to 31 December 2024 comprising
total shareholder return (TSR), growth
inEPS,cash flow, andstrategic
progressmetrics.
Remuneration Committee
We achieve our objectives with
anexecutive remuneration
programme that:
– offers competitive pay that allows
us to retain and attract top talent;
– emphasises pay for performance
that drives superior financial
results and value creation;
– provides strong alignment with
the interests of our shareholders;
– mitigates unnecessary and
excessive risk-taking; and
– considers the needs of our
entireworkforce.
BAE Systems has
deliveredanotheryear
ofstrong operational and
financialperformance.
94 BAE Systems plc  Annual Report 2024
Directors’ report
The Committee chose to exclude the
impactof the acquired SMS business for
long-term incentive awards granted before
2024, to enable like-for-like measurement
with the basis on which the original
performance targets were set. Accordingly,
earnings fromSMS and the related capital
employed in 2024 have been excluded from
the vestingcalculation.
For the three-year performance period
ended 31 December 2024, TSR grew by
145% making BAE Systems the third-highest
performing stock in the FTSE 100. Average
annual EPS growth is 12.5% per annum, with
free cash flow of £6.8bn over the period,
exceeding the stretch targets set in 2022.
Most of the strategic progress metrics were
fully achieved by 31 December 2024, and
therefore the calculated vesting outcome
forthe Performance Shares is between
92.9% and95.6% of maximum for each
ofthe executive directors (see page114).
TheCommittee considered these outcomes
in the context of overall business and
competitive performance, including any
volatility in share price around the time of
grant which might result in awindfall gain,
and determined thatthe calculated vesting
outcomes wereappropriate.
The Committee has the discretion to
adjustformulaic outcomes. Except for the
reduction applied to annual bonuses for
2024, the Committee did not consider
itnecessary to make any other adjustments.
Accordingly, the Remuneration policy has
operated asintended throughout the year
inthe contextof Company performance
andoverall pay outcomes.
Wider workforce
The Committee actively reviews and considers
wider workforce pay when determining
executive director remuneration. The policies
and practices applying to the wider workforce
are broadly the same as those applying to
executive directors, although quantum
andparticipation by location and grade
mayvary.
During 2024, UK employees received an
average pay increase of between 4.5%
and5.2%. UK employees are eligible to
receive a performance-related bonus,
andparticipate inthe Company’s pension
arrangements, as well as receive life
insurance, income protection insurance,
health and wellbeing benefits, shopping
discounts, access to a 24/7/365 employee
assistance programme, and financial
assistance through a credit unionowned
and operated by BAE Systems’ employees
and retirees. In addition, employees can
become shareholders through anannual
award of shares dependent upon Group
financial performance (worth £629 in 2024,
with afurther £613 of sharesto be granted
in2025). Employees in participating
countries have an opportunity toacquire
further shares, including freematching
shares, through an all-employee Share
Incentive Plan. Similarpay arrangements
including health,wealth andlifestyle
benefits exist foremployees across our
otheroperating locations including the US.
Long-term incentive share awards are
granted to around 800 employees each
year,mostly senior executives (to three
reporting levels below the executive
directors) plusselected high-performing and
high-potential employees whose specialist
skills and innovation we want to retain.
Proposed changes in 2025
The current Remuneration policy was
approved by shareholders in 2023.
Sincethen the geopolitical and economic
environment has become more uncertain,
andthe Committee believes that the risks
oflosing key executives and the urgent
opportunities to recruit new types of talent
Company-wide warrant addressing some
changes to the Remuneration policy now,
rather than waiting another year.
We have an excellent leadership team
ledbyCharles Woodburn, Brad Greve and
TomArseneault, and we are focused on
keeping them. They provide the continuity
ofleadership and relationships that are
essential to executing existing programmes
and securing multi-decade, multi-country
programmes such as AUKUS and GCAP,
andnew markets including SMS.
It is our practice to secure key talented
individuals to support our leaders, atask
thatis becoming both more essential and
more challenging because:
– the range of our business operations
means that we compete for talent
outsidethe traditional defence sector,
incompetition with big tech, start-ups,
private equity and adjacent-sector
multi-nationals. To retain and attract
theemployees needed to deliver our
commitments, our pay plans need to
consider these other competitors;
– we are a global company and our
employees are highly prized internationally,
including in locations where remuneration
levels are significantlyhigher than in the
UK; and
– national security considerations place
restrictions on certain roles – for example,
our Chief Executive must be a UK
national,and the President and Chief
Executive Officer of BAE Systems, Inc.
canonly be a US resident citizen. Similar
nationality and security requirements
existat other levels throughout the
organisation. This means that our talent
pool for recruiting new hires is limited,
yetour existing employees can choose to
work anywhere, so a remuneration policy
that is sufficiently competitive to retain
existing talent, by growing and keeping
our own, is ever more important.
Summary of key decisions andoutcomes
– 2025 base pay increases are 3% forthe UK executive directors, and 4% fortheUS executive director, each in line
withthewider workforce in the same locality.
– 2024 annual bonus outcomes for executive directors are around 98% ofmaximum.
– Performance Shares granted in 2022 will vest at between 92.9% and 95.6% of maximum.
For the three-year performance period ended
31December 2024, TSR grew by 145% making
BAESystems the third-highest performing stock
intheFTSE 100.
95BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
We pay local market rates in the locations
inwhich we operate, but this can create pay
compression challenges for globally mobile
employees. For example, target remuneration
for some of our US employees is close to or
greater than for our UK-based executive
directors. We risk losing critical employees
toorganisations able to offer higher pay
opportunities globally, and even within the
same country. Our current Remuneration
policy means that we have difficulty
matching and recruiting from those same
competitors, and we are increasingly forced
to pay our joiners more than our stayers,
andthat is an unsustainable attraction and
retention strategy.
While we are not proposing a global
movetoUS (orothercountry) pay levels,
wewill continue our approach of paying
appropriately for thelocal competitive
market in which an employee is based.
LTIopportunity for our UK executive
directors and some key senior executives has
fallen below the UK market levels needed to
compete for talent, including some specific
UK competitors that actively seek our
employees. The proposed increases to LTI
opportunity are designed tomitigate those
risks, without overpaying inthe market.
In preparing our policy proposal, we
consulted withour 65 largest shareholders,
representing nearly 70% of shares held, and I
wasdelighted with the level of engagement
and support received. Shareholder feedback
has been extremely valuable in helping the
Committee determine its final proposals.
For the most part, our existing Remuneration
policy remains appropriate, but we would
like to make some changes to strengthen
andsimplify it, enhancing the competitiveness
of our long-term incentives to retain key
employees by better aligning their pay with
the markets in which we actively compete
for talent. The key proposed changes are to:
1. Increase LTI opportunity for UK executive
directors and other key senior executives
to a more competitive level, aligned with
the local competitive market in which they
are based. No increase in LTI opportunity
isproposed for the US executive director.
2. Increase Minimum Shareholding
Requirements (MSR) for the UK executive
directors to a level corresponding to
theirproposed new maximum grant
ofPerformance Shares, toincentivise
executives to stay for the long term
anddeliver long-term growth. The
increased MSR levels will also apply
totheirpost-employment shareholding
requirements.
3. Remove the current facility that enables
executives to sell up to 75% of their shares
before achieving their MSR, and instead
require that they “may not sell, except
fortax, any vested shares until their
MSRismet in full” thereby requiring
long-term commitment and investment
inthe Company.
The increased LTI awards will include
appropriately stretching performance targets
to reflect the increased LTI opportunity, and
we shall continue to review all targets to
ensure they remain appropriately stretching.
Remuneration Committee report continued
Shareholder feedback
hasbeen extremely
valuable in helping the
Committee determine
itsfinal proposals.
We are also proposing some changes
tosimplify our Remuneration policy and
remove unnecessary restrictions that might
prevent us from hiring and rewarding the
best talent:
1. Remove the current restriction that
“norole will have a salary greater than
theChief Executive”. This policy restriction
may prevent us from hiring niche skills
inthefuture, or from acquiring a new
international business where base pay
levels are already higher than our own.
2. Remove the current salary increase limit
of“10% in any single year for executive
directors” and instead adopt a more
practical limit that “ordinarily any increases
will notexceed the average percentage
increase for the widerworkforce in
thesame locality”.
3. Make no changes to executive directors’
maximum bonus opportunity but change
the bonus level at threshold performance
to 25% ofmaximum (currently 20% of
maximum) to align with a more normal
payout curve of 25%–50%–100% for
threshold–target–stretch achievement,
aligned with the Company’s other
incentive programmes, including the
existing long-term incentiveplan.
4. Replace the safety and diversity underpin
forannual bonus that currently applies
only to the outturn of non-financial
objectives (representing 25% of bonus
opportunity) with a ‘bonus moderator’
that can reduce the whole ofthe
calculated bonus if there are any factors
that warrant a reduction. This would
continue to include important safety
metrics but enable a broader
consideration of other factors, with
anyapplication to be fully disclosed
intheannual report.
LTI opportunity – Performance Shares (% of base pay)
Chief Executive
FTSE 30 median/upper quartile
Speci�c UK FTSE 30 competitor #1
Speci�c UK FTSE 30 competitor #2
Current/proposed
500%
500%
500%
500%
400%
370%
0 200100 400300
LTI opportunity (% of base pay)
500 600
Chief Financial Officer
FTSE 30 median/upper quartile
Speci�c UK FTSE 30 competitor #1
Speci�c UK FTSE 30 competitor #2
Current/proposed
400%
400%
450%
500%
308%
335%
0 200100 400300
LTI opportunity (% of base pay)
500 600
96 BAE Systems plc  Annual Report 2024
Directors’ report
By the time of the 2025 AGM, Charles
Woodburn will have been Chief Executive
fornearly eight years and Brad Greve will
have beenChief Financial Officer for over
fiveyears. ThePerformance Shares have
afive-year vesting period, and therefore
theproposed increases for Charles and
Bradmean that (excepting any unfortunate
personal circumstances) they would not
receive anything extra as a result of the
proposed LTIincreases unless they are
stillemployed by the Company in five
years’time (i.e.2030).
These changes to the Remuneration
policywill enable changes to incentive
payfor other senior executives across our
businesses, enabling their remuneration
tobe competitive, rewarding performance
and mitigating key retention risks.
Executive director pay in 2025
Incorporating the proposed Remuneration
policy changes explained above, the
remuneration framework for executive
director pay in 2025 is:
Base pay
With effect from 1 January 2025, the
UKexecutive directors received base pay
increases of 3% and the US executive
director received a base pay increase of 4%,
each in line with the average percentage
increase for the wider workforce in their
samelocality.
Pension and benefits
No changes to policy or operation,
althoughpension contributions for Brad
Greve increased from 8% to 9% of base
paywith effect from 1 January 2025, aligned
with the level available to new joiners to the
UK workforce which was increased from
8%to 9% of base pay during 2024.
Annual incentive plan
The annual bonus structure and opportunity
for executive directors will remain unchanged
in 2025, other than the proposed change
from 20% to 25% of maximum for bonus
payout at threshold performance. The
financial performance measures and
weightings will continue to be based
onearnings, cash and order intake, with
performance targets set in line with the IBP.
The safety and diversity underpin (currently
applying to only 25% of bonus opportunity)
will be replaced with a ‘bonus moderator’
that can reduce the whole of the bonus if
there are any factors that warrant a
reduction.
They would not receive
anything extra as a
resultofthe proposed
LTIincreases unless they
are still employed by
theCompany in five
years’time (i.e. 2030).
Our Chief Executive’s pay
is86% performance-based
with 64% paid in shares.
Proposed increases to LTI and MSR
Chief Executive
+130%
Proposed: 500%
Current: 370%
LTI
+200%Current: 300%MSR
Chief Financial Officer
+65%
Proposed: 400%
Current: 335%LTI
+200%Current: 200%MSR
0% 100% 200% 300% 400% 500%
% of base pay
Long-term incentives
If approved by shareholders at the 2025
AGM, increased awards of Performance
Shares will be granted to the UK executive
directors. No increase in LTI opportunity
isproposed for the US executive director.
Theperformance measures willcontinue to
be EPS, TSR, cash flow, ROCEandESG with
the same weightings asfor 2024, but will
include increased stretchin the targets.
Minimum Shareholding Requirements (MSR)
If approved by shareholders at the 2025 AGM,
increased MSR will apply to in-employment
and post-employment shareholding
requirements for the UK executive directors,
and they will not be able tosell, except for
tax, any vested shares until their MSR is met
in full.
In conclusion
I hope that you find this year’s report a clear
account of the Committee’s considerations
and decisions relating to the remuneration
outcomes for 2024, and the timely
recommendations for thechanges we would
like to make to our Remuneration policy in
2025, to retain key employees and strengthen
the link between pay and performance.
Thank you to the numerous shareholders,
institutional investors and other stakeholders
who have helped inform and shape our
Remuneration policy proposals, and thank
you to all the investors for the faith you place
in us. I hope that you will support the
proposed changes at the 2025 AGM and
remain invested in our shared future.
On behalf of the Board
Nicole Piasecki
Chair of the Remuneration Committee
97
BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Quick read summary
Current Remuneration policy summary and 2024 implementation
This section summarises the key features of the current Remuneration policy approved by shareholders at the
2023 AGM. Please refer to the 2022 Annual Report (available on the Company’s website) for full details.
Remuneration element
and time horizon Policy summary 2024 implementation
Base pay
2024
2026
2025
2027
2028
Operation
Base salaries are reviewed annually, taking
intoaccount performance, skills, the scope
oftherole,and the individual’s time in role.
Opportunity
Increases for executive directors will generally
notexceed the average percentage increase
foremployees asa whole. As a maximum,
inexceptional circumstances (eg a material
increase in job sizeor complexity, or for a
recentlyappointed executive director where
salary has been positioned low against
themarket), the increase is not expected to
exceed 10% in any single year for executive
directors performing in the same role.
Performance
Business and individual performance will
betakeninto consideration.
Base pay
Effective
1 January
2024
Effective
1 January
2025
2025 %
increase
Charles Woodburn £1,233,764 £1,270,800 3.0%
Brad Greve £783,907 £807,500 3.0%
Tom Arseneault $1,143,314 $1,189,000 4.0%
UK workforce (average) 3.0%
US workforce (average) 4.0%
Pension
2024
2026
2025
2027
2028
Operation
For UK executive directors, a defined
contributionpension plan, or a salary
supplementin lieu, or some combination
thereof.Base salary is the only element of
pensionable remuneration. The President
andChief Executive Officer of BAE Systems, Inc.
participates in theUS Defined Benefit pension
plans and a USSection 401(k) defined
contribution plan.
Opportunity
The maximum employer contribution for
theChief Executive has been aligned to
theweighted average of the UK workforce
(14%). Themaximum employer contribution
forany newUK executive director is in line with
the levelavailable to new joiners to the wider
UKworkforce (8%, increased to 9% from
1 August 2024). The maximum annual accrual
forthe US Defined Benefit pension plans is
$1,500, and the maximum 401(k) contribution
is6% of base salary, capped at applicable
USregulatory limits.
Performance
No performance conditions.
Pension contributions
During
2024
(% of base pay)
Effective
1 January 2025
(% of base pay)
Charles Woodburn 14% 14%
Brad Greve 8% 9%
Tom Arseneault US DB + 401(k) US DB + 401(k)
(see page 111)
Benefits
2024
2026
2025
2027
2028
Operation
Employment benefits which are competitive
inline with relevant home market.
Opportunity
The maximum amount is the cost of providing
thebenefits, subject to the limits of those
benefitplans and any tax or regulatory limits.
Performance
No performance conditions.
Benefits during 2024 include:
– Transportation benefits
– Financial and tax support
– Medical benefits
(see page 110)
98 BAE Systems plc  Annual Report 2024
Directors’ report
Remuneration element
and time horizon Policy summary 2024 implementation
Annual incentive
2024
2026
2025
2027
2028
One-third
deferred for
threeyears
Operation
Annual bonus linked to in-year financial
performance, corporate responsibility and
othernon-financial objectives. One-third of
thetotal net bonus is compulsorily deferred for
three yearsinto shares without any matching.
Malusand clawback provisions apply.
Opportunity
No bonus for below threshold performance,
with20% of maximum at threshold; 50%
ofmaximum at target; 100% of maximum
atstretch; and payout determined on a
straight-line basis for performance between
these points.
Performance
75%-80% of targets will relate to financial
metricsaligned with long-term earnings and
cash. The non-financial element will be based
ona combination of personal performance
objectives that provide clear line of sight to
ourstrategic objectives.
Annual incentive
At maximum
(% of base pay)
Actual 2024
(% of max)
Actual 2024
(£/$)
Charles Woodburn 225% 98.5% £2,734,329
Brad Greve 200% 98.5% £1,544,296
Tom Arseneault 225% 98.23% $2,526,924
2024 performance measures
B
C
D A
Financial performance
A EPS/Earnings 45%
B Cash 22.5%
C Order intake 7.5%
75%
Other
D Key strategic objectives 25%
100%
Long-term incentives
Performance Shares
2024
2026
2025
2027
2028
Performance
Deferral
Restricted Shares
(USexecutive director)
2024
2026
2025
2027
2028
Service
Clawback
Operation
Performance Share awards are subject
tothree-year performance conditions. For
UKexecutive directors, shares are deferred
forafurther two years and vest from the fifth
anniversary of grant, and for US executive
directors the shares vest in three equal
trancheson the third, fourth and fifth
anniversaries of grant.
USexecutive directors receive Restricted Shares,
subject to remaining employed for threeyears
after grant, with a requirement toretain those
shares for a further two-year clawback period.
Opportunity
Nil vesting for below threshold performance,
with25% of maximum at threshold; 50% of
maximum at target; 100% of maximum at
stretch; and vesting on astraight-line basis
between these points.
Performance
Direct financial measures based on the KPIs that
drive our financial ambitions, linked to long-term
strategic priorities. The Committee has discretion
to override the formulaic outcome if it is not
reflective of underlying performance. Malus
andclawback provisions apply.
No performance conditions for Restricted
Shares.
Performance Shares
Maximum
opportunity
(% of base pay)
2024 grant
(% of base pay)
Vesting based
on performance
ended in 2024
(% of max)
Charles Woodburn 370% 370% 95.6%
Brad Greve 335% 335% 95.6%
Tom Arseneault 440%
1
440%
1
92.9%
1. Plus Restricted Shares awarded at 150% of base pay.
2022 grant performance measures (performance period ended 2024)
A EPS 25%
B TSR 25%
C Cash 25%
D Strategic progress 25%
100%
C
B
D A
2024 grant performance measures
A EPS 30%
B TSR 15%
C Cash 30%
D ROCE 15%
E ESG 10%
100%
C
E
B
D
A
Minimum
Shareholding
Requirement (MSR)
Employment
Post
(UK)
Post
(US)
Executive directors are required to establish
andmaintain a minimum shareholding equal
toaset percentage of base salary. Executive
directors are expected to achieve 50% of
theMSRas quickly as possible, and achieve
thefullMSR within a five-year period.
If an executive director leaves employment
foranyreason, they are required to maintain
aminimum level of shares for a minimum
periodpost-cessation.
Full MSR
(% of base pay)
Post-cessation MSR
(% of base pay)
Actual shareholding
31December 2024
(% of base pay)
Charles Woodburn 300% 300% for two years 859%
Brad Greve 200% 200% for two years 180%
Tom Arseneault 425% 300% for one year 1,466%
99BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Quick read summary continued
2024 performance outcomes
Actual performance against targets set for 2024 Weighting
Threshold Target Stretch
Actual
performance
UK executive
directors
US executive
director
% of maximum
achieved
Annual bonus
Group underlying EPS 61.5p 64.8p 66.8p 69.6p 45% 15% 100%
Group free cash flow £482m £892m £1,302m £2,526m 22.5% 7.5% 100%
Group order intake £20.8bn £22.0bn £23.1bn £33.6bn 7.5% 2.5% 100%
Inc. underlying EBIT $1,900m $2,000m $2,067m $2,130m 30% 100%
Inc. free cash flow $563m $801m $1,039m $1,909m 15% 94.9%
Inc. order intake $13.39bn $14.16bn $14.92bn $20.59bn 5% 100%
Key strategic objectives See page 113 25% 25% 94%– 96%
100% 100% 98.23%–98.5%
Long-term incentives
Annual average EPS growth (3-year) 3% p.a. 5% p.a. 7% p.a. 12.5% p.a. 25% 25% 100%
TSR vs FTSE 100
9.6%
median
53.9%
80th percentile
145.5% 25% 25% 100%
Free cash flow £3.5bn £4.0bn £4.2bn £6.8bn 25% 100%
Inc. operating cash flow $4.1bn $4.5bn $4.6bn $5.5bn 25% 100%
Strategic progress metrics
– Operational excellence (on-time delivery)
UK/International
–5%
Improvement in
3-year average
+3% +13.1% 4.5% – 100%
– Operational excellence (on-time delivery)
Inc.
–5%
Improvement in
3-year average
+3% –2.1% 3.8% 8.3% 39.3%
– Return on capital employed (ROCE) 15.66% 15.91% 16.16% 17.34% 8.3% 8.3% 100%
– Advance technology
(milestone achievements)
7 11 15 13 8.3% 8.3% 75%
100% 100% 92.9%–95.6%
Key
Below target Between target and stretch At or exceeds stretch
Note: Actual results have been adjusted to be on a comparable basis with the targets, including alignment of foreign exchange rates.
Freecash flow for the annual bonus ismeasured on a quarterly basis, with achievement reflecting performance throughout the year.
Total remuneration
The charts below show the breakdown of total remuneration received by the executive directors for 2023 and 2024, and their maximum total remuneration
opportunity for 2024.
Charles Woodburn
(£’000)
2023 (actual) 1,387 2,613 9,450 13,451
11,681
12,070
7,497
7,844
2,734
2,776
2024 (actual) 1,449
2024 (maximum) 1,449
Brad Greve
(£’000)
2023 (actual) 846 1,472 7,126
6,244
6,444
3,814
4,807
3,990
1,544
1,568
2024 (actual) 885
2024 (maximum) 885
Tom Arseneault
(£’000)
2023 (actual) 954 1,940 5,479 9,723
8,426
8,780
4,150
4,468
1,350
1,339
1,339
1,977
2,013
2024 (actual) 960
2024 (maximum) 960
Fixed (base pay, benefits and pension contributions)
Annual incentive
Performance Shares
Other (Restricted Shares, free shares and matching shares under the UK all-employee Share Incentive Plan)
The values for the Performance Shares included in the figures for 2023 calculated in the 2023 Annual Report based on the three-month average share price
to31 December 2023 (£10.6475) have been adjusted to reflect the actual value for the tranche at vesting for Tom Arseneault based on the share price at the
vesting date of 25 March 2024 (£13.60). The totals for Charles Woodburn and Brad Greve include £1k classified as ‘Other’ relating to the value of Free Share
awards and Matching Shares under the all-employee Share Incentive Plan (SIP).
100 BAE Systems plc  Annual Report 2024
Directors’ report
Proposed new Remuneration policy
The following sections set out our proposed new Directors’ Remuneration policy, which is subject to shareholder
approval at the AGM on 7 May 2025, and which, if approved, will take effect from the conclusion of the AGM.
Below is a summary of the key changes between the current Remuneration policy and the proposed new Remuneration policy, which are
designed to simplify and strengthen our policy by removing unnecessary restrictions that might prevent us from hiring and rewarding the
besttalent, while enhancing the competitiveness of our long-term incentives to retain key employees and align their pay with the markets
inwhich we actively compete for talent. We are not proposing any new incentive plans. We are aiming to deliver an overall remuneration
package that provides an appropriate balance between short-term and long-term reward, and between fixed and variable reward.
Remuneration type Proposed changes Rationale
Base pay
– Remove the current restriction that “no role will
have a salary greater than the Chief Executive”.
– Remove the current salary increase limit of
“10%in any single year” and replace with the
requirement that “ordinarily any increases will
not exceed the average percentage increase for
the wider workforce in the same locality”.
– The current policy restrictions may prevent us from
hiring niche skillsin the future, or from acquiring a
new international business where base pay levels
arealready higher than ourown.
– Incorporate a more practical limit for managing
executive director pay increases relative to the
widerworkforce.
Annual incentive plan (AIP)
– No changes to executive directors’ maximum
bonusopportunity.
– Change the bonus level at threshold
performance to 25% ofmaximum
(currently20% of maximum).
– Replace the safety and diversity underpin
witha‘bonus moderator’that can reduce
thewhole ofthecalculated bonus if there
areany factorsthat warrant a reduction.
– Alignment with a more normal payout curve of
25%–50%–100% for threshold–target–stretch
achievement simplifies the bonus calculation and
aligns with the payout curve for other incentive
programmes including the LTI plan.
– The underpin currently only appliesto the outturn of
non-financial objectives (representing 25% ofbonus
opportunity), but the ‘bonusmoderator’ can reduce
(but not increase) thewhole of the calculated bonus
for abroad range of factors including workplace
culture and important safetymetrics.
Long-term incentives (LTI)
– Increase maximum Performance Shares grant
forthe UK executive directors:
– Chief Executive from 370% to 500%
ofbasepay.
– Chief Financial Officer from 335% to 400%
ofbase pay.
– Incentivise executives to stay for thelong term
anddeliver long-term growth.
– Long-term incentive opportunity has fallen below
the UK market levels needed to compete for talent.
– No increase in LTI opportunity is proposed for
theUSexecutive director.
Minimum Shareholding
Requirement (MSR)
– Increase MSR for the UK executive directors
toalevel corresponding to the new maximum
Performance Shares opportunities:
– Chief Executive from 300% to 500%
ofbasepay.
– Chief Financial Officer from 200% to 400%
ofbase pay.
– Increased MSR for the UK executive directors
applies to both their in-employment and
post-employment shareholding requirements.
– Executives will not be able to sell, except for
tax,any vested shares until their MSR is met in
full(replacing the previously complex two-step
arrangement that enabled up to 75% of shares
tobe sold before the MSR was achieved).
– MSR requires executives tohave long-term
commitment and investment inthe Company.
– Simplification of MSR operation requires executives
to build their MSR as quickly as possible.
In addition, it is proposed that the current policy of an annual aggregate cost of fees and benefits paid to non-executive directors
(currently£3.0m in total and £1.25m for the Chair) is replaced with a more practical and meaningful approach to setting fees that takes
intoaccount responsibility of each role, time commitment, practice in other comparable companies, and the average increasefor the wider
workforce. Fee levels are disclosed on page 119.
101
BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Proposed new Remuneration policy continued
Base pay Pension Benefits Annual incentive plan (AIP)
Purpose and link to strategy Purpose and link to strategy Purpose and link to strategy Purpose and link to strategy
Provides a fixed level of
earnings, appropriate to the
market and requirements of
the role.
Provides a basis for an income
inretirement.
Provides benefits and allowances
appropriate to the market to
assist employees in their duties
and to ensure their safety
andsecurity.
Incentivises and rewards the achievement
ofannual financial performance and the
delivery of key strategic objectives.
Operation Operation Operation Operation
Reviewed annually, usually
with effect from 1 January,
taking into account:
– the scope of the role;
– the individual’s skills,
experience and
performance;
– competitive market data;
– pay and conditions
elsewhere in the Group;
and
– overall business
performance.
There is no obligation to
increase base pay upon any
such review and any decision
to increase base pay will take
into account the associated
impact on overall quantum.
UK-based executive directorsmay:
– participate in the defined
contribution pension plan;
– receive a cash allowance in lieu; or
– some combination thereof.
US based executive directors may
participate in:
– the US defined benefit pension
plans; and
– US Section 401(k) defined
contribution plan.
Base pay is the only element of
pensionable remuneration.
In line with other employees,
benefits mayinclude:
– health allowance, including
medical and dental benefits;
– life insurance;
– ill-health and disability
insurance;
– financial and tax support; and
– all-employee Share Incentive
Plan participation.
In line with other senior
executives, executive directors
may receive a non-pensionable
cashallowance in lieu of
acompany car.
From time to time, the executive
directors may use a chauffeur-
driven carand a company aircraft.
In normal circumstances:
– performance is assessed over
aone-yearperiod;
– performance measures and
weightingsare set each year, to be
relevant and aligned with the Group’s
strategic priorities;
– performance targets are set to be
appropriately stretching, taking into
account forecasts in the business
plan,budgets, prior year performance
and marketexpectations;
– bonus awards are determined after the
end of the performance period, taking
into consideration performance against
targets and individual performance;
– two-thirds of any bonus award is paid in
cash, with one-third of the total net bonus
deferred into shares for three years, with
dividends or dividend equivalents paid
during the deferral period; and
– malus and clawback applies to cash
awards and deferred shares.
Opportunity Opportunity Opportunity Opportunity
There is no maximum
basepay, but ordinarily
anyincreases will not
exceedtheaverage
percentage increase
forthewider workforce
inthe same locality. In
specific circumstances,
theCommittee may award
increases above this level,
forexample where:
– base pay for a recently
appointed executive
director has been set
witha view to allowing
progression in the role
overtime; or
– there has been a
significant increase in
thesize or scope of an
executive director’s role
orresponsibilities.
The maximum employer
contribution for the:
– Chief Executive is aligned with
theweighted average available to
the UK workforce (currently 14%).
– Chief Financial Officer and any
other new UK-based executive
director is the level available to
the majority of UKdefined
contribution plan members
(currently 9%).
– President and Chief Executive
Officer of BAESystems,Inc.
maximum annual accrual for
theUS defined benefit pension
plans is $1,500 and the maximum
401(k) contribution is 6% of base
pay,capped at applicable
USregulatory limits.
The maximum value is the actual
costof providing the benefits
which, forinsured benefits, may
vary from yeartoyear.
The maximum opportunity for
the all-employee ShareIncentive
Plan is the same for all participants,
capped at applicable UKHMRC
limits.
The maximum opportunity for the:
– Chief Executive is 225% of base pay;
– Chief Financial Officer and any other
UK-based executive director is 200%
ofbase pay;
– President and Chief Executive Officer of
BAE Systems, Inc. is225% of base pay.
The performance payout range is:
– nil bonus for performance below threshold;
– 25% of maximum at threshold;
– 50% of maximum at target; and
– 100% of maximum at stretch; with
– payout on a straight-line basis for
performance between these points.
The Committee will consider the calculated
outcome in the context of a range of factors
(not just the specific performance measures)
including overall business performance,
safety and workforce culture, and may
applya‘bonus moderator’ toreduce
(butnot increase) the bonus ifthere are
anyfactors that warrant areduction.
Performance Performance Performance Performance
Personal performance will
betaken into consideration
in determining any base
payincrease.
No performance conditions. No performance conditions. A combination of:
– financial performance (with at least
75%weighting); and
– key strategic objectives.
102 BAE Systems plc  Annual Report 2024
Directors’ report
Long-term incentives (LTI)
Minimum shareholding
requirement (MSR) Non-executive director (NED) fees
Purpose and link to strategy Purpose and link to strategy Purpose and link to strategy
Provides a direct and transparent link between executive pay
andthe delivery of long-term performance.
Ensures long-term commitment
and investment in the Company,
aligning executive pay with
shareholder returns.
Provides an appropriate reward to attract and
retain high-calibre NEDs with the relevant skills,
knowledge and experience.
Operation Operation Operation
Performance Shares:
– a performance period of three years, plus a further
two-year deferral period;
– for UK-based executive directors, shares vest five years
after grant; for the US executive director, shares vest
inthree equal tranches on the third, fourth and fifth
anniversaries ofgrant;
– performance measures and weightings are set each year,
toberelevant and aligned with the delivery of shareholder
returns over the long term;
– performance targets are set to be appropriately stretching,
taking into account forecasts in the strategic plan, prior
performance and market expectations;
– dividends or dividend equivalents accrue during the
performance and deferral periods based on the number
ofshares that have vested, but excluding any shares that
have lapsed; and
– malus and clawback applies.
Restricted Shares:
– for US executive director only, subject to remaining
employed for three years from the grant date, plus
afurther two-year clawback period; and
– notional reinvested dividends accrue during the
vestingperiod.
Executive directors may not
sell,except for tax, any vested
shares until their MSR is met
infull.
Executive directors must
maintain their MSR (or their
actual shareholding at the
dateof leaving, if lower)
foratleast two years after
leaving employment with
theGroup (one year for the
USexecutive director).
The sale of shares prior to
theMSR being met may be
permitted in extenuating
situations, for example,
achangeto personal
circumstances, ill health, etc.
NED fees are determined by the Chair and
executive directors.
NEDs receive a base fee, with an additional
feefor:
– the Senior Independent Director (SID);
– Committee Chair (except Nominations
Committee); and
– Committee membership (except
NominationsCommittee).
The Chair’s fee is determined by the Committee.
NED and Chair fees are reviewed periodically,
taking into account:
– responsibility of each role;
– time commitment;
– practice in other comparable companies; and
– the average increase for the wider workforce.
Opportunity Opportunity Opportunity
The maximum Performance Shares annual grant for the:
– Chief Executive is 500% of base pay;
– Chief Financial Officer and any other UK-based executive
director is 400% ofbase pay;
– President and Chief Executive Officer of BAE Systems, Inc.
is440% of base pay.
The performance payout range for Performance Shares is:
– nil vesting for performance below threshold;
– 25% of maximum at threshold;
– 50% of maximum at target; and
– 100% of maximum at stretch; with
– vesting on a straight-line basis for performance
betweenthese points.
The Committee will assess the formulaic vesting calculation, and
may amend the vesting outcome in the context of a range of
factors including overall business and share price performance.
The President and Chief Executive Officer of BAE Systems, Inc.
additionally receives an annual grant of Restricted Shares
equivalent to150% of base pay. There areno performance
conditions for Restricted Shares, other than continued
employment forat least three years from thegrant date
witha further two-year clawback period.
The Minimum Shareholding
Requirement (comprising shares
owned outright) for the:
– Chief Executive is 500%
ofbase pay;
– Chief Financial Officer and
anyother UK-based executive
director is 400% of base pay;
– President and Chief Executive
Officer of BAESystems, Inc. is
425% ofbase pay.
Post-employment shareholding
requirements for the:
– Chief Executive is 500%
ofbase pay for two years;
– Chief Financial Officer and
anyother UK-based executive
director is 400% of base pay
for two years;
– President and Chief Executive
Officer of BAESystems, Inc. is
300% ofbase pay forone year.
There is no cap on the amount of NED fees
payable, but fees are reviewed periodically taking
account of the factors listed above and may be
increased atappropriate intervals.
NEDs are not eligible to participate in any
Company pension arrangements or any
performance-related incentives.
The Chair may be provided with a chauffeur-
driven car. This may be used for non-Company
business, providing that the cost of the benefit
ispaid for by the Chair.
Travel and subsistence expenses (including
anyassociated tax cost) incurred on Company
business by a director or their accompanying
partner may be reimbursed.
Directors’ and Officers’ insurance cover
isprovided.
Performance Performance Performance
For the Performance Shares, an appropriate mix of financial
and other measures based on the key performance
indicators that drive our financial ambitions, linked to
long-term strategic priorities with the majority determined
by financial metrics.
Not applicable. No performance conditions.
103BAE Systems plc  Annual Report 2024
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Proposed new Remuneration policy continued
Remuneration policy notes
Area Commentary
Decision-making
process
– The Remuneration Committee (the Committee) is governed by Terms of Reference setting out its purpose,
constitution and duties. These are reviewed regularly to ensure they remain appropriate including updated
corporate governance and other guidance.
– In determining the new Remuneration policy, the Committee undertook an extensive review to ensure that
itremains fit for purpose in an increasingly challenging environment.
– The Committee appoints external advisers to provide independent advice.
– In addition, to avoid anyconflicts of interest or appearance thereof, no director is involved in determining
theirown remuneration and is not present in such discussions.
Prior commitments – The Company will honour any commitments made in respect of executive and non-executive director
remuneration and benefits before the date on which either:
(i) the Directors’ Remuneration policy becomes effective; or
(ii) an individual becomes a director, if in the opinion of the Committee, the commitment or payment
wasnotincontemplation of the individual becoming a director.
Long-term
incentives
– Long-term incentives (LTI) operate in accordance with the rules of the BAE Systems Long-Term Incentive Plan.
– On a change of control or similar transaction, generally awards will vest to the extent performance conditions are
then satisfied (if applicable) and pro-rated to reflect the accelerated vesting timescale, unless the Committee decides
otherwise. Alternatively, awards may be exchanged for equivalent awards over shares intheacquiring company.
– The Committee has discretion to vary the weighting of Performance Shares and Restricted Shares for a US
executive director, but the overall expected value (EV) will remain the same (assuming EV is 50% offace value
forPerformance Shares and 100% of face value for Restricted Shares) and with Restricted Shares comprising
nomore than 150% of base pay.
– Restricted Shares are not subject to a performance condition as they are designed to address competitive market
practice and retention issues principally in the US.
Minor
amendments
– Awards and performance conditions may be adjusted to take account of variations of share capital and other
transactions or events.
– The Committee may amend share plan rules in certain circumstances to include minor changes
foradministrative, tax or other regulatory purposes.
– Performance conditions of awards already granted may be amended.
Performance
measures
and targets
– Performance conditions will be selected which align to the Group’s key performance indicators and
otherobjectives designed to achieve the Group’s strategy. Non-financial performance conditions may be
determined by the Committee in consultation with other committees including the Environmental, Social
andGovernance Committee.
– The Committee determines performance conditions annually, taking account ofthe Group’s strategic priorities,
the internal business plan and budgets, external market expectations and general economic conditions.
– Performance targets that are considered commercially sensitive and detrimental to the interests of the Company
to disclose prospectively, will be disclosed retrospectively after the end of the relevant financial period.
Discretion – For the AIP and LTI, the Committee has discretion to adjust any formulaic outcomes ifit determines that it is not
reflective of underlying performance for that metric or for the business as a whole. This discretion may apply
upwards or downwards, and any discretion willbeapplied in a disciplined manner with the rationale and impact
reported transparently.
Malus and
clawback
– Malus and/or clawback may be applied to any bonus, to deferred bonus until the end of the three-year deferral
period, and to LTIs until two years after vesting (or if sooner, the fifth anniversary of grant), or the occurrence of
certain corporate events where:
– the Company is entitled to terminate employment for cause or the participant has engaged in misconduct
(including breach of policy) which gives rise to other disciplinary sanction;
– the results of the Company and/or relevant business or businesses for any period have been restated or
subsequently appear materially inaccurate or misleading;
– any Group company or business unit has made a material financial loss; and/or
– the measurement of any performance condition does not reflect the performance of the Company over
theperformance period.
104
BAE Systems plc  Annual Report 2024
Directors’ report
Service contracts
and letters of
appointment
– All executive directors have rolling service agreements which may be terminated in accordance with those terms.
– Notice periods for executive directors will not exceed 12 months, except when recruiting a new executive
director operating in the US this may be extended to a maximum of 24 months, reducing to no more than
12 months by the end of their first year.
– No executive director has provisions in their service contract that relate to a change of control of the Company.
– The Chair’s appointment is documented in a letter of appointment.
– The Chair’s appointment is normally for an initial three-year period unless terminated earlier in accordance with
the Company’s Articles of Association or by the Company or the Chair giving not less than six months’ notice.
TheChair’s appointment may then be reviewed by the Nominations Committee and they may be invited
toservefor an additional period.
– Non-executive directors are normally appointed for an initial three-year period and, subject to review, may
beextended. Non-executive directors do not have notice periods or service contracts and their letters of
appointment detail the basis of their appointment.
– All directors are subject to annual election or re-election at the Company’s AGM.
Remuneration
policy for other
employees
– Policies and practices applying to other employees are broadly the same as those applying to executive directors,
although quantum and participation by location and grade may vary.
– A consistent approach to annual base pay reviews is applied across the Group, considering the role, level of
experience, performance and relevant market data.
– Employees may participate in an annual bonus plan dependent on financial, business and/orindividual performance.
Other employees may participate in performance-based incentives with metrics relevant for that business.
– LTI awards may be granted to senior executives below executive director level, plus selected high-performing
and high-potential employees.
Consideration
ofemployment
conditions
elsewhere in
theCompany
– The Committee is responsible for reviewing Group workforce remuneration and related policies and takes
theseinto account when setting the policy and pay for executive directors. To support this, the Committee is
provided with details of remuneration practices in the different sectors, geographies and populations across the
Company’s wider workforce. When reviewing base pay increases for executive directors, the Committee considers
average base pay increases for the wider workforce in the same locality and external market.
– The Committee does not consult directly with employees on executive pay, but the Annual Report is the principal
means through which we communicate and engage with employees on how executive directors’ remuneration
aligns with that of the wider workforce. Many of the Company’s employees are shareholders and they receive
adirect link to the annual report and an invitation to vote on the resolutions being put to the AGM, including
those relating to executive director remuneration. The results of the employee shareholder voting are
subsequently reported to the Board for discussion.
Stakeholder
considerations
– The Committee seeks to maintain an active dialogue with investors regarding remuneration and corporate
governance more generally. During 2024 and 2025 the Committee sought feedback from its 65 largest
shareholders (representing nearly 70% of shares held) and representative bodies regarding the Directors’
Remuneration policy, so that shareholders couldenter into further consultations with the Committee Chair
andexpress their views in advance of the Committee making any final proposals. The responses helped inform
and shape the Committee’s thinking in formulating the Remuneration policy proposals. The Committee is
grateful to shareholders for their feedback and continues to appreciate all feedback.
Approach to recruitment
The Committee aims to pay no more than it considers necessary to attract appropriate candidates and it is not anticipated that remuneration
will need to be different from the structure or exceed the limits set out in the Remuneration policy table.
Item Policy
‘Buy-out’
offorfeited
incentives
The Committee may make awards upon hiring an external candidate to ‘buy out’ existing incentives or other
elements of remuneration that is forfeited upon leaving their previous employer. The Committee will take account
ofrelevant factors including:
– any performance conditions attached to those awards;
– the form in which the awards were granted; and
– the time period over which they would have vested.
Buy-out awards will be no higher than the expected value of the forfeited awards, with details disclosed in the
following year’s remuneration report, and are excluded from the maximum incentive opportunities set out in the
remuneration policy table.
To facilitate any buy-out awards, the Committee may rely on the exemption in the Listing Rules, which allows
forthe grant of awards to facilitate, in unusual circumstances, the recruitment of an executive director, without
seeking prior shareholder approval or under any other appropriate Company incentive plan.
Relocation Where a new executive director has to relocate to take up the appointment, practical and financial support may
beprovided in relation to their relocation.
105
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Proposed new Remuneration policy continued
Policy on payment for loss of office
An executive director’s payments for loss of office will be determined by the policy that was in place at the date when the payments for loss
ofoffice were agreed.
Any termination payment will be subject to approval by the Committee, having regard to the terms of the service contract or other legal
obligations and the specific circumstances regarding the termination, including the circumstances of leaving, performance, service and health
or other relevant factors.
For executive directors, employment contracts will generally allow termination with up to 12 months’ notice from either party or by way
ofpayment of base pay in lieu of notice, at the Company’s discretion. Neither notice nor a payment in lieu of notice will be given in the event
of termination for gross misconduct. For US-based executive directors, employment contracts are typically for one-year periods and renew
automatically unless oneparty gives at least 60 days’ notice of non-renewal.
In all cases, the Committee seeks to include provisions in executive directors’ employment contracts that allow the Company to pay any notice
or severance payments on a phased basis and apply mitigation if the executive director secures alternative employment, if this is reasonably
practicable taking into account local labour law, tax and other relevant considerations.
Item Policy
Base pay, pension
and benefits
Payment made up to the termination date in accordance with contractual notice periods.
Pension benefits paid as governed by the rules of the relevant pension plan.
US executive director:
If employment is terminated by the Company (other than for cause as defined in the contract) or the executive
director resigns for a ‘good reason’ (as defined in the contract), the executive director will be entitled to a
termination payment equal to one year’s base pay. They will also be entitled to a continuation of medical benefits
for 18 months (or a cash payment in lieu).
Annual bonus UK executive directors:
Where employment is terminated after the end of a performance year but before any bonus payment is made,
theexecutive director will remain eligible for a bonus in respect of that performance year based on performance
achieved in the period. No award will be made in the event of termination for gross misconduct. Where an
executive director leaves during the relevant performance year by reason of death, ill-health, injury, disability,
retirement, saleor transfer of a business, redundancy, or other circumstances as the Committee determines, the
Committee may use its discretion to determine if they remain entitled to receive a bonus (based on performance
during theperformance year and pro-rated for time served) in respect of the financial year in which they ceased
employment. One-third of the total net bonus will be subject to compulsory deferral, unless the Committee
decides otherwise. Anannualbonus will not be awarded for any portion of a notice period not served.
US executive director:
If employment is terminated by the Company (other than for cause as defined in the contract) or the executive
director resigns for a ‘good reason’ (as defined in the contract), the executive director will be entitled to a
termination payment equal to the bonus payable at target level pro-rated for time served during the relevant
financial year.
Long-term
incentives
As governed by the relevant share plan rules. Where an executive director leaves the Group by reason of ill-health,
injury, disability, retirement with the agreement of the Company (other than Restricted Shares held by US executive
directors), sale or transfer of a business, redundancy or other circumstances as the Committee determines, unvested
awards and options generally continue and vest on the normal vesting date (or, for Performance Shares held by
USexecutive directors, the first normal vesting date or, if later, cessation), unless the Committee determines that
the awards should vest earlier. Any performance conditions will be applied at the time of vesting and the number
of awards or options will, unless the Committee decides otherwise, be reduced pro-rata to reflect the period in
which the executive director was in employment as a proportion of the relevant vesting period (or, for Performance
Shares held by US executive directors, as a proportion of the initial three-year vesting period). Options normally
remain exercisable for six months after cessation (or vesting, if later) and 12 months after death. In the event of
death, awards generally vest immediately subject to meeting any performance conditions at that time, with
awards pro-rated as described above. Where an executive director’s employment is terminated for any other
reason, their unvested awards and options will lapse. Where an executive director’s employment is terminated
oran executive director is under notice of termination for any reason, no LTI awards will be granted. In the case
ofunvested deferred bonus shares, these continue and vest on the normal vesting date, except in the event of
death when the shares vest immediately.
Other The Committee may pay amounts necessary to settle or compromise any claim or by way of damages, where it is
the opinion of theCommittee that it is in the best interests of the Company to do so. In the event of termination,
itis the Committee’s policy to seek to limit any payment to not more than one year’s base pay. Where appropriate,
theCompany may also meet a director’s reasonable legal expenses in connection with their termination.
Chair and
non-executive
directors
The Chair’s letter of appointment includes a six-month notice period. In the event of the termination of the
Chair’sappointment, a payment in lieu may be paid for any portion of the notice period not served. Non-executive
directors do not have notice periods and no additional payments will be due. Upon termination, the Company
hasno obligation to make any termination payments to non-executive directors.
106
BAE Systems plc  Annual Report 2024
Directors’ report
Illustration of application of policy
The charts below illustrate the value of remuneration for each executive director in the first year of operation of the Remuneration policy.
Thevalues are based on 2025 levels for base pay, estimated pension and benefits, and 2025 award levels for annual incentive and long-term
incentives. The charts assume the following scenarios and exclude dividends:
Minimum Fixed pay comprising base pay, pension and benefits plus Restricted Shares for theUSexecutive director.
On-target Minimum fixed pay plus on-target performance (50% of maximum) for annual incentives and Performance Shares.
Maximum Minimum fixed pay plus stretch performance (100% of maximum) for annual incentives and Performance Shares.
Maximum plus 50%
sharepriceappreciation
In addition to the maximum scenario, a 50% gain in share price over therelevantvesting period in respect of
Performance Shares and Restricted Shares.
Chief Executive
(£’000)
Maximum
On-target
Minimum
5
0% share price appreciation
10,705
13,882
6,098
1,492
Value of package (£’000)
14%
25%
27%
23%
59%
52%
100%
11% 20% 69%
0 2,000 4,000 6,000 8,000 14,000 16,00012,00010,000
Chief Financial Officer
(£’000)
Maximum
On-target
Minimum
5
0% share price appreciation
5,765
7,380
3,342
920
Value of package (£’000)
16%
28%
28%
24%
56%
48%
100%
12% 22% 66%
0 1,000 2,000 3,000 4,000 7,000 8,0006,0005,000
President and Chief Executive Officer of BAE Systems, Inc.
($’000)
Maximum
On-target
Minimum
5
0% share price appreciation
10,962
14,470
7,0 0 9
3,055
Value of package ($’000)
28%
44%
24%
19%
48%
37%
100%
27% 19% 54%
0 2,000 4,000 6,000 8,000 14,000 16,00012,00010,000
Fixed pay (base pay, pension and benefits plus Restricted Shares)
Annual incentives
Performance Shares
107BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
2025 remuneration framework
The table and charts below provide an overview of the proposed 2025 remuneration framework for the executive directors (subject to
approval at the 2025 AGM).
Charles Woodburn
Chief Executive
Brad Greve
Chief Financial Officer
Tom Arseneault
President and Chief Executive
Officer of BAE Systems, Inc.
Base pay
£1,270,800 £807,500 $1,189,000
Pension
andbenefits
Pension
Defined contribution
(14% of base pay)
Defined contribution
(9%ofbase pay)
US defined benefit
andSection 401(k)
definedcontribution
Benefits
Transportation benefits
Financial and tax support
Medical benefits
Annual incentive On-target/maximum opportunity
(%base pay)
112.5%/225% 100%/200% 112.5%/225%
Deferral
One-third deferred into shares for three years
Performance
Shares
Grant (% base pay) 500%
1
400%
1
440%
Vesting
Three-year performance period,
vests in year 5
Three-year
performanceperiod with
vested shares released
one-third in years 3, 4, 5
Restricted
Shares
Grant (% base pay)
n/a 150%
Vesting n/a
Three-year service
conditionplus two-year
clawback period
Minimum
Shareholding
Requirement
In-employment (% base pay)
500%
1
400%
1
425%
Post-employment (% base pay)
500% for
two years
1
400% for
two years
1
300% for
one year
1. Subject to approval at the 2025 AGM.
 TOTAL REMUNERATION – FIXED AND VARIABLE (AT MAXIMUM)
Charles Woodburn
Chief Executive
AB
A Fixed 14%
Base pay 12%
Pension/benefits 2%
B Variable 86%
Annual incentive 27%
Performance Shares 59%
Brad Greve
Chief Financial Officer
AB
A Fixed 16%
Base pay 14%
Pension/benefits 2%
B Variable 84%
Annual incentive 28%
Performance Shares 56%
Tom Arseneault
President and Chief Executive Officer
ofBAESystems, Inc.
AB
A Fixed 28%
Base pay 11%
Pension/benefits 1%
Restricted Shares 16%
B Variable 72%
Annual incentive 24%
Performance Shares 48%
108 BAE Systems plc  Annual Report 2024
Directors’ report
Annual remuneration report
How our approach to remuneration aligns with strategy
Our remuneration approach has been designed to incentivise and reward delivery of the Group strategy and the achievement of long-term
sustainable performance. Inalignment with the provisions of the UK Corporate Governance Code, the Committee has continued to consider
our approach to executive remuneration to ensure that our policies, structures and performance measures have clear strategic rationale.
The Committee considers it important that the performance measures for the annual incentive and long-term incentive arrangements are
directly aligned to the Group’s KPIs and other strategic priorities as shown in the following table.
How do the performance measures used for incentive arrangements align with the Group’s 2025KPIs and other strategic objectives?
Group KPIs and
strategic objectives
Earnings per
share (EPS) Cash
Order
intake
Total shareholder
return (TSR)
Return on
capital
employed
Environmental,
social and
governance Key strategic objectives
Links to strategy
3
5
1
5 1
2
3 5 5 1
4
6 1
2
3
4
5
6
Annual incentive 45% 22.5% 7.5% 25%
Long-term incentive 30% 30% 15% 15% 10%
 LINKS TO STRATEGY
1
Sustain and grow our defencebusiness.
2
Continue to grow our business
inadjacentmarkets.
3
Develop and expand our international business.
4
Inspire and develop adiverse workforce to
drivesuccess.
5
Enhance financial performance and deliver
sustainable growth in shareholder value.
6
Advance and integrate our sustainability agenda.
Alignment with the UK Corporate Governance Code
When determining the proposed new Directors’ Remuneration policy, the Committee reviewed our alignment with the provisions of the
2018and 2024 UK Corporate Governance Codes.
The table below details how the Committee addressed the principles set out in the UK Corporate Governance Code in respect of the
Directors’Remuneration policy:
Clarity
In line with our commitment to full transparency and engagement with shareholders on executive remuneration,
theChair of the Remuneration Committee consulted with major shareholders and shareholder representative
bodiesregardingthe proposedchanges to the 2025 Remuneration policy.
The Company consults directly with the broader employee population onremuneration through a variety of
methods including virtual meetings, explanatory guides hosted on the intranet, human resources or business-led
briefings, direct line manager engagement and materials posted to employees’ home addresses.
Simplicity
Simple construct of fixed pay, annual incentive and long-term incentives has been in use for a number ofyears.
Theobjective of each element of our policy is explained and the amount paid in respect of each pay component
isclearly set out.
Risk
Design features exist within the remuneration arrangements to take into account risk including: malus andclawback;
application of reasonable discretion to override formulaic outcomes; and consideration of annual bonus outcomes in
the context of a range of factors including overall businessperformance, safety and workforce culture. Incentive plan
targets and stretch are set to represent sufficient challenge without motivating excessive risk taking.
Predictability
The Remuneration policy includes maximum award levels and vesting outcomes applicable to annual and long-term
incentives, with the ability to apply malus, clawback and reasonable discretionwhere appropriate.
Proportionality
Performance conditions for annual and long-term incentives require a minimum level of performanceto be achieved
for any payout. There is a direct link between an individual’s reward andtheir contribution. No payment is made for
poor performance. Any individual’s performance that is below expectations isdealt with as part of the performance
management process – any individual leaving employment due to performance issues will not be entitled to any
incentive payments.
Alignment to culture
There is a direct link between delivering BAE Systems’ strategy and an individual’s reward, with incentive plan
performance measures chosen to align with the Company’s key performance indicators.
The Committee assesses performance against a range of objectives, to ensure that remuneration is not determined
solely based on financial performance, but the behaviours are consistent with BAE Systems’ culture.
109BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Annual remuneration report continued
‘Single figure’ of remuneration – executive directors (audited)
The following table shows the single total figure of remuneration for each executive director in respect of qualifying services for the 2024
financial year, together with comparatives for 2023.
Fixed Variable
LTIP
1
Base pay
£’000
Benefits
£’000
Pension
£’000
Total
fixed
£’000
AIP
£’000
Face value
£’000
Share
appreciation
£’000
Total
LTIP
£’000
Other
2
£’000
Total
variable
£’000
Total
£’000
2024
Charles Woodburn 1,234 42 173 1,449 2,734 4,014 3,483 7, 497 1 10,232 11,681
Brad Greve 784 38 63 885 1,544 2,042 1,772 3,814 1 5,359 6,244
Tom Arseneault 895 50 15 960 1,977 2,222 1,928 4,150 1,339 7, 466 8,426
2023
Charles Woodburn 1,181 41 165 1,387 2,613 4,012 5,438 9,450 1 12,064 13,451
Brad Greve 750 36 60 846 1,472 2,041 2,766 4,807 1 6,280 7,126
Tom Arseneault 880 60 14 954 1,940 2,129 3,349 5,479 1,350 8,768 9,723
1. The 2024 values for the LTIP are calculated based on the three-month average share price to 31 December 2024 (£12.665) as these awards are yet to vest. The vesting
values shown in the 2023 columns, calculated in the 2023 Annual Report based on the three-month average share price to 31 December 2023 (£10.6475) have been
adjusted to reflect the actual value for the tranche at vesting of Performance Shares for Tom Arseneault based on the share price at the vesting date of 25 March 2024
(£13.60).
2. Other includes the value of Free Share awards under the UK all-employee Share Incentive Plan (SIP) of £613 for Charles Woodburn and Brad Greve, and their
respectiveMatching Shares from voluntary investment in the SIP (£810); and the value at grant of the 2024 Restricted Shares award equivalent to 150% of base pay
forTom Arseneault. This award formed part of Tom Arseneault’s 2024 LTIP allocation but is required to be reported under ‘Other’ as it has no performance conditions.
Tom Arseneault is paid in US dollars with the disclosed figures converted to pounds sterling at the appropriate exchange rate.
Base pay (audited)
Base pay for 2024 is shown below.
Base pay for 2024 and 2025
Effective 1 January 2024 Effective 1 January 2025 % increase
Charles Woodburn £1,233,764 £1,270,800 3.0%
Brad Greve £783,907 £807,500 3.0%
Tom Arseneault $1,143,314 $1,189,000 4.0%
Benefits (audited)
Benefits received by the executive directors during 2024 is shown below:
Transportation benefits
1
Financial and tax support Medical benefits
2
Total
2024
£’000
2023
£’000
2024
£’000
2023
£’000
2024
£’000
2023
£’000
2024
£’000
2023
£’000
Charles Woodburn 26 25 8 8 8 8 42 41
Brad Greve 22 20 8 8 8 8 38 36
Tom Arseneault 19 26 12 12 19 22 50 60
1. Transportation benefits include company car or cash allowance and private use of chauffeur-driven car for UK executive directors, and private use of chauffeur-driven
car and company aircraft for the USexecutive director.
2. Medical benefits include private medical insurance and other insured benefits for UK executive directors, and private medical and executive medical benefits,dental
benefits, life insurance and disability benefits for the US executive director.
Benefits for 2025
Benefits for 2025 remain unchanged and in line with the proposed 2025 Remuneration policy.
110
BAE Systems plc  Annual Report 2024
Directors’ report
Pension (audited)
Charles Woodburn receives pension contributions equal to 14% of base pay, aligned to the weighted average pension contributions
oftheUKworkforce.
During 2024, Brad Greve received pension contributions equal to 8% of base pay, in line with the level available to new joiners to the
widerUKworkforce. From 1 August 2024, the pension contributions available to new joiners increased to 9% of base pay and, accordingly,
BradGreve received pension contributions of 9% of base pay from 1 January 2025.
For Charles Woodburn and Brad Greve, the maximum permitted by the Annual Allowance (£10,000 per annum for 2024) is paid into
theCompany’s defined contribution (DC) pension plan, with the excess paid as a taxable cash allowance.
Tom Arseneault participates in the US defined benefit and Section 401(k) defined contribution plan as follows:
Arrangement Accrued benefit at 1January 2024 Accrued benefit at 31 December 2024
BAE Systems ERP Qualified Plan – life pension $39,348 per annum $39,348 per annum
BAE Systems ERP 2006 Qualified Plan – lump sum $85,000 $86,000
12/31/2004 BRP Restoration Plan – life pension $5,283 per annum $5,283 per annum
2007 BRP – ten-year pension $97,416 per annum $99,920 per annum
Section 401(k) $1,719,441 $1,953,446
The accrued defined benefit for Tom Arseneault is an annual pension and lump sum payable at retirement (normal retirement age 65)
priortoany reduction for early retirement. Tom Arseneault also participates in a Section 401(k) defined contribution arrangement for
USemployees in which the Company will match his contributions up to a maximum contribution of 6% of base pay, up to US regulatory
limits(2025 $23,500; 2024 $23,000). In2024, theCompany paid contributions of $18,341 into this arrangement. The accrued Section 401(k)
benefit for Tom Arseneault is the totalvalue ofhis Section 401(k) account including both employee and company contributions as well as
investment returns.
Pensions for 2025
Pension arrangements for Charles Woodburn and Tom Arseneault remain unchanged and in line with the proposed 2025
Remuneration policy.
Brad Greve will receive pension contributions equal to 9% of base pay in line with the level available to the majority of UK defined
contribution plan members (with the maximum permitted by the Annual Allowance paid into the Company’s defined contribution
pension plan and the excess payable as a taxable cash allowance).
Payments to former directors and for loss of office (audited)
There were no payments to former directors in 2024. There were no payments for loss of office in 2024.
111
BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Annual remuneration report continued
Annual bonus (audited)
The 2024 annual bonuses are based on performance for the year ended 31 December 2024. 75% of the bonus opportunity is determined
byfinancial performance and 25% is based on the achievement of key strategic objectives.
The figures in the table below represent the total annual bonus amounts to be paid, including the cash amount payable in March 2025
(two-thirds of total), and the amount deferred into BAE Systems shares for a further three years to be released in March 2028 subject
to malusand clawback provisions (one-third of total).
2024 annual bonus for Charles Woodburn and Brad Greve
2024 performance range and outcome Weighted outcome (%)
Performance measure
Threshold
(20% max)
Target
(50% max)
Stretch
(100% max)
Actual
performance
Percentage
ofmaximum
achieved Weighting
Charles
Woodburn
Brad
Greve
Financial
Group underlying EPS 61.5p 64.8p 66.8p 69.6p 100% x 45% = 45% 45%
Group free cash flow £482m £892m £1,302m £2,526m 100% x 22.5% = 22.5% 22.5%
Group order intake £20.8bn £22.0bn £23.1bn £33.6bn 100% x 7.5% = 7.5% 7.5%
Non-financial
Key strategic objectives See page 113
Charles Woodburn 94% x
25% =
23.5%
Brad Greve 94% x 23.5%
Total (% of maximum) 100% 98.5% 98.5%
x x
Maximum bonus opportunity (% of base pay) 225% 200%
x x
2024 base pay £1,233,764 £783,907
= =
2024 annual bonus £2,734,329 £1,544,296
2024 annual bonus for Tom Arseneault
2024 performance range and outcome Weighted outcome (%)
Performance measure
Threshold
(20% max)
Target
(50% max)
Stretch
(100% max)
Actual
performance
Percentage
ofmaximum
achieved Weighting
Tom
Arseneault
Financial
Group underlying EPS 61.5p 64.8p 66.8p 69.6p 100% x 15% = 15%
Group free cash flow £482m £892m £1,302m £2,526m 100% x 7.5% = 7.5%
Group order intake £20.8bn £22.0bn £23.1bn £33.6bn 100% x 2.5% = 2.5%
Inc. underlying EBIT $1,900m $2,000m $2,067m $2,130m 100% x 30% = 30%
Inc. free cash flow $563m $801m $1,039m $1,909m 94.9% x 15% = 14.23%
Inc. order intake $13.39bn $14.16bn $14.92bn $20.59bn 100% x 5% = 5%
Non-financial
Key strategic objectives See page 113 96% x 25% 24%
Total (% of maximum) 100% 98.23%
x
Maximum bonus opportunity (% of base pay) 225%
x
2024 base pay $1,143,314
=
2024 annual bonus $2,526,924 £1,977,171
Key
Below target Between target and stretch At or exceeds stretch
Note: Actual results have been adjusted to be on a comparable basis with the targets, including alignment of foreign exchange rates. Free cash flow is measured on
aquarterly basis, with achievement reflecting performance throughout the year.
An underpin applies to the non-financial element, with the requirement to uphold and deliver our commitment tohigh standards of
safetyand an inclusive workforce. Performance in respect of this underpin was determined by the Environmental, Social and Governance
Committee (whose report is shown on pages 91 to 92). In view of the increase in recordable injuries during the year, the Remuneration
Committee determined that the achievement of the non-financial key strategic objectives for each of the directors should be adjusted
byafactor of 0.96.
112
BAE Systems plc  Annual Report 2024
Directors’ report
Key strategic objectives
Achievement of key strategic objectives represents 25% of the annual bonus opportunity. These objectives relate to the delivery of the
Group’s strategic priorities as listed below. Executive directors and Executive Committee members are collectively responsible for shared
common strategic objectives.
Shared strategic objective Assessment
Enhance financial performance and deliver sustainable
shareholder growth
– Drive efficiencies and effectiveness
– Accelerated margin expansion through driving functional efficiencies and improved
organisational structures.
– Successful integration of Ball Aerospace within BAE Systems, Inc.
Sustain and grow our defence and security business
– Enable enhanced growth and effectiveness outcomes
– Enable growth through recruitment fulfilment, effectiveness
anddemand accuracy
– Improved and implemented IT controls to maintain our digital and cyber assurances.
– Rationalised our policies, processes and procedures to increase consistency in our
ways of working.
– Achieved improvements to our resourcing capability through a focus on recruitment
fulfilment, efficiency and effectiveness at all points of the life-cycle, and developing
accurate in-year recruitment demand plans.
Continue to grow our business in adjacent markets
– Enable growth in adjacent markets
– Increase adjacent market portfolio mix
– Exceeded key technology milestones against our strategic technology
growththemes.
– Established margin accretive opportunities to increase future adjacency orders.
Develop and expand our international business
– Pursue growth internationally
– Significant progress against our non-home and non-core growth ambitions.
– Successfully pursued additional margin accretive opportunities to increase
ourinternational market share.
Inspire and develop a diverse workforce to drive success
– Succession development
– Enhance workplace culture
– Embedded robust talent management practices including increased identification
ofHigh Potentials and developing robust succession plans, talent profiles and
objectives, toestablish a strong future talent pipeline.
– Within Inc., successfully met goals to track movement and development of
high-potential employees on succession plans.
– Successfully met stretch targets to increase UK gender diversity and ethnicity.
– Within Inc., achieved goals to increase workforce diversity.
Advance and integrate our sustainability agenda
Environment
– Progress decarbonisation of global operations (Scopes 1 and 2)
1
– Advance Scope 3 reduction roadmap
Social and Governance
– Embed refreshed Code of Conduct
– Conduct feasibility study on ESG data
– Engaged suppliers in the UK, Australia and KSA in line with agreed phases in our
Supply Chain decarbonisation roadmap.
– Within Inc., progressed key projects that support decarbonisation of our product
portfolio (Scope 3).
– Implemented a refreshed Code of Conduct.
– Established a disclosure roadmap to address gaps in compliance inkey ESGmaterials.
1. Against target baseline year of 2020. The baseline year will be recalculated during 2025 to include the respective GHG emissions of the SMS business.
Key Below target Between target and stretch At or exceeds stretch
Key strategic objective
outturn (% of maximum) Underpin
Percentage of
maximumachieved
Charles Woodburn 98% x 0.96 = 94%
Brad Greve 98% x 0.96 = 94%
Tom Arseneault 100% x 0.96 = 96%
Annual incentive for 2025
In line with the proposed 2025 Remuneration policy, the 2025 annual incentive maximum opportunity levels remain unchanged.
The2025 annual incentive will remain subject to the same performance measures and weightings as for 2024, with 75% based
onfinancial performance (comprising earnings, cash and order intake) and 25% based on the achievement of key strategic objectives.
Subject to approval at the 2025 AGM, the underpin (currently applying to only 25% of bonus opportunity) will bereplaced with a
‘bonus moderator’ that can reduce the whole of the calculated bonus if there are any factors that warrant areduction. The performance
payout curve will be 25%–50%–100% of maximum for threshold–target–stretch performance achievement withpayout on a straight-
line basis for performance between these points.
The Committee is of the view that bonus targets are commercially sensitive and that it would be detrimental forthe Company
todisclose them in advance. The targets will be disclosed retrospectively after the end of the relevant financial year.
113
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Annual remuneration report continued
Long-term incentive (audited)
The following table summarises the achievement of Performance Share awards vesting in respect of the three-year performance period
ended 31 December 2024.
Actual performance against targets
Percentage
of maximum
achieved
Weight
(percentage of
maximum)
Weighted vested
outcome (%)
Key performance indicators
Threshold
(25%vesting)
Target
(50%vesting)
Stretch
(100%vesting)
Actual
performance
UK
executive
directors
US
executive
director
UK
executive
directors
US
executive
director
Annual average EPS growth
(3-year)
3% p.a. 5% p.a. 7% p.a. 12.5% p.a. 100% 25% 25% 25% 25%
TSR vs FTSE 100 9.6%
median
53.9%
80th percentile
145.5% 100% 25% 25% 25% 25%
Free cash flow £3.5bn £4.0bn £4.2bn £6.8bn 100% 25% 25%
Inc. operating cash flow $4.1bn $4.5bn $4.6bn $5.5bn 100% 25% 25%
Strategic progress metrics
– Operational excellence
(on-time delivery)
UK/International
–5%
Improvement
in 3-year
average
+3%
+13.1%
100%
4.5%
–
4.5%
–
– Operational excellence
(on-time delivery)
Inc.
–5%
Improvement
in 3-year
average
+3% –2.1% 39.3% 3.8% 8.3% 1.5% 3.3%
– Return on capital employed
(ROCE)
15.66% 15.91% 16.16% 17.34% 100% 8.3% 8.3% 8.3% 8.3%
– Advance technology
(milestone achievements)
7 11 15 13 75% 8.3% 8.3% 6.3% 6.3%
100% 100%
Overall vesting 95.6% 92.9%
Key
Below target Between target and stretch At or exceeds stretch
Note: Actual results have been adjusted to be on a comparable basis with the targets, including alignment of foreign exchange rates.
The Committee chose to exclude the impact of the acquired SMS business for LTI awards granted before 2024, to enable like-for-like
measurement with the basis on which the original performance targets were set. Accordingly, earnings from SMS and the related capital
employed in 2024 have been excluded from the vesting calculation.
For the three-year performance period ended 31 December 2024, EPS, TSR and cash flow targets exceeded the stretch targets set in 2022.
Most of the strategic progress metrics were fully achieved by 31 December 2024 and therefore the calculated vesting outcome for the
Performance Shares is between 92.9% and 95.6% of maximum for each of the executive directors.
Before approving the vesting outcomes, the Committee considered overall business and competitive performance, and whether there
hadbeen any windfall gain due to volatility in the share price around the time of grant in March 2022. Having considered the share price
movements around the time of grant, and also having retrospectively reviewed share price performance since grant, the Committee was
satisfied that the calculated vesting outcomes andvalues forthe Performance Shares vesting in respect of the performance period ended
31 December 2024 are appropriate.
Long-term incentives for 2025
Subject to approval at the 2025 AGM, the 2025 long-term incentive opportunities will be:
Performance Shares
2025 grant
(% of base pay)
Charles Woodburn 500%
Brad Greve 400%
Tom Arseneault 440%
1
1. Plus a grant of Restricted Shares equivalent to 150% of base pay.
The Performance Shares to be granted in 2025 will remain subject to the same performance measures and weightings asfor2024,
asshown onthe next page.
The performance payout range will remain at 25%–50%–100% of maximum for threshold–target–stretch performance achievement
with vesting on a straight-line basis for performance between these points.
114
BAE Systems plc  Annual Report 2024
Directors’ report
Description of share plans
Performance Shares
Performance Shares are subject to a performance period of three years, plus a further two-year deferral period. For UK-based executive
directors, shares vest five years after grant; for the US executive director, shares vest in three equal tranches on the third, fourth and fifth
anniversaries ofgrant. Dividends or dividend equivalents accrue during the performance and deferral periods based on the number of
sharesthat have vested, but excluding any shares that have lapsed.
The description of the performance conditions for awards granted since 2023, and for awards proposed to be granted in 2025, are shown
below. Details of the performance conditions for awards granted before 2023 are provided in the respective Annual Reports available on
theCompany’s website.
Weighting Awards
Threshold
(25%vesting)
Target
(50%vesting)
Stretch
(100%vesting)
EPS
Average annual diluted underlying EPS growth over three years.
30%
2023 & 2024
3% pa
5% pa
7% pa
2025 4% pa 6% pa 8% pa
TSR
Vesting is determined by (i) the Company’s TSR measured
againstother companies inthe FTSE 100 index; and (ii) whether
there has been a sustained improvement in theCompany’s
underlying financial performance.
15%
2023 & 2024
Median
–
80th percentile
2025 Median – 80th percentile
Cash
For UK executive directors, three-year cumulative free cash flow
(FCF) at a Group level, and forthe US executive director, three-year
operating cash flow (OCF) in respect of BAE Systems, Inc.
30%
2023, 2024
&2025
Due to commercial sensitivity, the targets
willbedisclosed retrospectively after the end
oftherelevant performance period
ROCE
Comparison in ROCE versus IBP.
Due to commercial sensitivity, exact targets will be disclosed
retrospectively after theend of the relevant performance period.
15%
2023 & 2024
25bps reduction
Consistent
25bps improvement
2025 25bps reduction Consistent 25bps improvement
ESG
Reduce Group GHG emissions (Scope 1 and 2) aligned to a
science-based pathway of 1.5°C, year-on-year over ten years
1
.
10%
2023 & 2024
5% reduction
12.6% reduction
14% reduction
2025 5% reduction 12.6% reduction 14% reduction
1. Against baseline year of 2020. The baseline year will be recalculated during 2025 to include the respective GHG emissions of the SMS business.
Awards vest on a straight-line basis for performance between threshold, target and stretch.
Restricted Shares
Restricted Shares are not subject to any performance conditions as they are designed to ensure remuneration for senior US executives remain
competitive in the local market and to assist in mitigating retention risks in respect of certain key executives. The shares are subject only tothe
condition that the participant remains employed by the Group at the vesting date (three years after the award date). Restricted Shares accrue
notional reinvested dividends during the vesting period. Awards made to the US executive director are subject to a further two-year clawback
period after the initial three-year vesting period.
115
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Annual remuneration report continued
Statement of directors’ shareholdings and share interests
Scheme interests awarded during the financial year (audited)
Scheme Date of grant
Number
of shares
Basis of award
(%of base pay)
Face value
of award
1
£
Exercise
price
£
Date to which
performance
ismeasured
(three years to)
Charles Woodburn
Performance Shares 21.03.24 341,686 370% 4,564,927 nil 31.12.26
Brad Greve
Performance Shares 21.03.24 196,563 335% 2,626,088 nil 31.12.26
Tom Arseneault
Performance Shares 21.03.24 294,011 440% 3,927,994 n/a 31.12.26
Restricted Shares 21.03.24 100,231 150% 1,339,089 n/a n/a
1. The value of the award is calculated on the grant date by reference to the middle market quotation at close on the preceding day (£13.36 for the grants made
on21 March 2024).
Note: Performance Shares for UK executive directors are structured as nil cost options. For the US executive director, awards of Performance Shares are classified as
conditional share awards (rather than share options) and are deliverable on the third, fourth and fifthanniversary of grant, subject to attainment of the performance
condition. For the UK executive directors, shares vest on the fifth anniversaries of grant. 25% vests at threshold; 50% vests at target; and 100% vests for stretch
performance. Further detail on the performance conditions is set outon page 115.
Minimum Shareholding Requirement (MSR) (audited)
Executive directors are required to establish and maintain a minimum personal shareholding equal to a fixed percentage of their base pay
assetout in the table below.
Where an executive director leaves employment for any reason, a post-employment shareholding requirement will apply. For UK executive
directors, thepolicy is based on the full MSR continuing to apply for a period of two years. For US executive directors, the policy is based on
MSR of 300% of base pay applying for a period of one year. Executive directors will be required to sign a contract upon leaving employment
to ensure compliance with this requirement. Any case of non-compliance will be dealt with by the Committee.
The following table sets out the MSR and actual shareholdings (as a percentage of base pay) as at 31 December 2024.
MSR Actual Achieved MSR Post-employment MSR
Charles Woodburn 300% 859% Yes 300% for 2 years
Brad Greve 200% 180% Expected by April 2025 200% for 2 years
Tom Arseneault 425% 1,466% Yes 300% for 1 year
The actual MSR figures at 31 December 2024 are based on the year-end share price of £11.485.
Minimum Shareholding Requirement (MSR) from 2025
Subject to approval at the 2025 AGM, the in-employment and post-employment shareholding requirements (asapercentage of base pay)
will be:
In-employment MSR Post-employment MSR
Charles Woodburn 500% 500% for 2 years
Brad Greve 400% 400% for 2 years
Tom Arseneault 425% 300% for 1 year
116 BAE Systems plc  Annual Report 2024
Directors’ report
Share interests as at 31 December 2024 (audited)
The interests of the executive directors in the shares of BAE Systems plc, orscheme interests inrelation to those shares, were:
Shares Scheme interests: Options and awards over shares
Share awards
with performance
conditions
Share awards
without performance
conditions
Share options
with performance
conditions
Share options
with performance
conditions, vested
but unexercised
Share options
without performance
conditions, vested
butunexercised
Total
scheme
interests
Charles Woodburn 923,752 – – 2,911,196 – – 2,911,196
Brad Greve 123,270 – – 1,574,436 – – 1,574,436
Tom Arseneault 1,164,504 1,445,659 402,549 – – 888,091 2,736,299
Note: The share options without performance conditions were granted to Tom Arseneault prior to him being appointed an executive director. These options are vested
but unexercised with an exercise price ranging from £4.85 to £6.49 per share, and expiry dates ranging from 21.03.2027 to 20.03.2029.
The interests of the non-executive directors who served during the year ended 31 December 2024 in the shares ofBAESystems plc were:
Shares
Chair
Cressida Hogg 13,698
Non-executive directors
Nick Anderson 14,000
Crystal E Ashby –
Angus Cockburn 2,000
Dame Elizabeth Corley 19,000
Jane Griffiths 10,117
Ewan Kirk 10,000
Stephen Pearce 10,000
Nicole Piasecki
1
3,132
Lord Mark Sedwill
2
–
1. Shares held in the form of 783 American Depositary Shares.
2. Holding shown at date retired from the Board (10 September 2024).
The interests of directors include those of their connected persons.
Since 31 December 2024, Charles Woodburn and Brad Greve have each acquired an additional 37 shares through the all-employee Share
Incentive Plan. Their beneficial shareholdings at the dateof this report stood at 923,789and123,307 respectively.
There have been no other changes in the interests of the directors in the shares of BAE Systems plc between 31 December 2024 and
17February 2025 (the latest practicable date for inclusion in this report).
Share Options – options exercised during 2024
Exercised during
the year Exercise price £ Date of grant Date of exercise
Market price
atexercise £
Tom Arseneault 2015 Share Options 258,380 5.425 25.03.2015 22.10.2024 13.3015
Tom Arseneault 2016 Share Options 289,258 4.988 23.03.2016 22.10.2024 13.3015
Charles Woodburn 2018 Performance Shares 704,014 nil 20.03.2018 08.03.2024 12.5460
Charles Woodburn 2019 Performance Shares 485,694 nil 20.03.2019 04.06.2024 13.8884
– The Share Options granted to Tom Arseneault were granted prior to him being appointed an executive director and do not have performance conditions attached.
Options are normally exercisable between the third and tenth anniversary of their grant. Share options granted to him from 2015 onwards are subject to a two-year
clawback period after the initial three-year vesting period.
– The 2018 and 2019 Performance Shares granted to Charles Woodburn vested based on TSR and EPS performance conditions with vesting outcomes of 100% and 57.9%
respectively. The awards were structured as nil-cost options and accrued notional reinvested dividends during the performance and deferral periods. The shares vested
on the fifth anniversary of grant and were exercisable until the seventh anniversary of their grant.
The tables above have been subject to audit.
117
BAE Systems plc  Annual Report 2024
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Annual remuneration report continued
Executive directors’ service contracts
All executive directors have rolling service agreements which may be terminated in accordance with the terms of those agreements.
Dates of appointment for executive directors:
Name Date of appointment Expiry of current term
Charles Woodburn 1 July 2017 12 months’ notice by either party
Brad Greve 1 April 2020 12 months’ notice by either party
Tom Arseneault
1
1 April 2020 60 days’ notice by either party
1. Tom Arseneault’s contract of employment automatically renews for a one-year period from 31 December each year, unless one party gives the other at least
60days’notice.
In accordance with the UK Corporate Governance Code, all directors are subject to annual election or re-election at the Company’s AGM.
Chair and non-executive directors – letters of appointment
The appointment of Cressida Hogg as Chair is documented in a letter of appointment. Her appointment is for three years ending on
4 May2026 unless terminated earlier in accordance with the Company’s Articles of Association or the Company or by the Chair giving
notlessthan six months’ notice.
Non-executive directors do not have service contracts but have letters of appointment detailing the basis of their appointment.
Thenon-executive directors are normally appointed for an initial three-year term that, subject to review, may be extended subsequently
forfurther suchterms. Non-executive directors do not have notice periods. The dates of their original appointment and expiry of their
currentterm are shown below:
Name Date of appointment Expiry of current term
Nick Anderson 1 November 2020 31 October 2026
Crystal E Ashby 1 September 2021 1 September 2027
Angus Cockburn 6 November 2023 5 November 2026
Dame Elizabeth Corley 1 February 2016 31 December 2025
Jane Griffiths 1 April 2020 31 March 2026
Ewan Kirk 1 June 2021 31 May 2027
Stephen Pearce 1 June 2019 1 June 2025
Nicole Piasecki 1 June 2019 1 June 2025
118 BAE Systems plc  Annual Report 2024
Directors’ report
‘Single figure’ of remuneration for the Chair and non-executive directors (audited)
Fixed
Committee
membership as at
31December 2024
Fees
£’000
Benefits
£’000
Other
£’000
Total
remuneration
£’000
2024 2023 2024 2023 2024 2023 2024 2023
Chair
Cressida Hogg
1
N
700 486 – – – – 700 486
Sir Roger Carr
2
n/a 243 – – – – – 243
Non-executive directors
Nick Anderson
E
I
N
129 110 14 8 – – 143 118
Crystal E Ashby
E
N
110 99 18 6 – 9 128 114
Angus Cockburn
3
A
N
R
129 16 5 – – – 134 16
Dame Elizabeth Corley
A
E
I
N
R
153 121 3 2 – – 156 123
Jane Griffiths
A
E
N
146 120 7 3 – – 153 123
Chris Grigg
4
n/a 143 – – – – – 143
Ewan Kirk
I
N
R
146 131 4 3 – – 150 134
Stephen Pearce
A
E
N
146 120 20 1 – – 166 121
Nicole Piasecki
I
N
R
182 143 21 11 – 9 203 163
Lord Mark Sedwill
5
E
N
74 99 – – – – 74 99
1. Appointed to the Board on 1 November 2022 and as Chair on 4 May 2023.
2. Retired from the Board and as Chair on 4 May 2023.
3. Appointed to the Board on 6 November 2023.
4. Retired from the Board on 31 December 2023.
5. Retired from the Board on 10 September 2024.
The amounts for ‘Benefits’ relate to travel and subsistence expenses.
Committee Chair
A
Audit and Risk Committee
E
Environmental, Social and
GovernanceCommittee
I
Innovation and Technology
Committee
N
Nominations Committee
R
Remuneration Committee
Chair of the Board
Cressida Hogg succeeded Sir Roger Carr as Chair on 4 May 2023, and received the same fee and benefits as her predecessor of£700,000
perannum. Her fee was reviewed and with effect from 1 April 2025, will be increased by 3% to £721,000 per annum. The fee for the Chair
ofthe Board isset by the Remuneration Committee.
Non-executive directors
Fees for the non-executive directors were reviewed in February 2025 by the Chair and executive directors. It was agreed that with effect from
1 April 2025, the fees will be increased by 3% in line withthe average percentage increase for the wider workforce in the UK.
Effective
1 April 2023
Effective
1 April 2024
2024
% increase
Effective
1 April 2025
2025
% increase
Base fee £88,400 £92,500 4.6% £95,300 3%
Additional fees
Senior Independent Director £35,000 £36,500 4.3% £37,600 3%
Committee Chair (except Nominations Committee) £35,000 £36,500 4.3% £37,600 3%
Committee membership (except Nominations Committee) £15,000 £20,000 33.3% £20,600 3%
119BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Annual remuneration report continued
Annual percentage change in directors’ remuneration
As required by legislation, thetable below shows the percentage change in remuneration forexecutive directors, non-executive directors
andan average employee comparator group (being those employed by BAE Systems plc on a full-time equivalent basis). The percentage
changes represent the change in remuneration, as reported in the single figure of remuneration, andtherefore may indicate significant
increases or decreases when comparing pay representing a part-year.
2023/2024
% change
2022/2023
% change
2021/2022
% change
2020/2021
% change
2019/2020
% change
Base pay/
fees Benefits
1
Annual
bonus
Base pay/
fees Benefits
1
Annual
bonus
Base pay/
fees Benefits
1
Annual
bonus
Base pay/
fees Benefits
1
Annual
bonus
Base pay/
fees Benefits
1
Annual
bonus
Executive directors
Charles Woodburn +4.5 +3.3 +4.6 +4.0 +11.0 +4.9 +2.5 +56.4 +2.9 +12.7 +17.7 +39.1 +6.9 –3.9 –12.1
Brad Greve
2
+4.5 +6.6 +4.9 +14.1 +14.2 +43.6 +5.6 +79.3 +6.0 +36.0 +44.2 +68.7 n/a n/a n/a
Tom Arseneault
2
+1.7 –17.1 +1.9 +3.3 +7.1 +4.0 +15.0 +24.1 +15.8 +27.9 +156.9 +115.4 n/a n/a n/a
Current non-executive
directors
Cressida Hogg
2
+43.9 n/a n/a +3,333.6 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Nick Anderson
2
+17.2 +86.2 n/a +29.5 +642.4 n/a 0.0 –42.7 n/a +500.0 +81.0 n/a n/a n/a n/a
Crystal E Ashby
2
+11.6 +171. 8 n/a +16.2 +51.7 n/a +200.0 n/a n/a n/a n/a n/a n/a n/a n/a
Angus Cockburn
2
+703.2 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Dame Elizabeth Corley +26.2 +101.8 n/a +42.7 +69.7 n/a 0.0 – 47.6 n/a +1.5 0.0 n/a +4.7 –100.0 n/a
Jane Griffiths
2
+21.9 +94.9 n/a +9.1 +288.3 n/a 0.0 –82.2 n/a +72.5 0.0 n/a n/a n/a n/a
Ewan Kirk
2
+11.5 +45.8 n/a +19.4 +101.7 n/a +75.8 +92.6 n/a n/a n/a n/a n/a n/a n/a
Stephen Pearce
2
+21.9 +2,326.6 n/a +9.1 –20.3 n/a 0.0 –50.0 n/a +1.1 +90.4 n/a +133.0 –4.0 n/a
Nicole Piasecki
2
+28.0 +95.6 n/a +40.7 +72.2 n/a +19.2 n/a n/a +1.5 –100.0 n/a +79.5 –35.5 n/a
Former non-executive
directors
Sir Roger Carr
2
n/a n/a n/a –65.2 0.0 n/a 0.0 0.0 n/a 0.0 0.0 n/a 0.0 0.0 n/a
Dame Carolyn Fairbairn
2
n/a n/a n/a n/a n/a n/a –58.2 n/a n/a n/a n/a n/a n/a n/a n/a
Chris Grigg n/a n/a n/a +29.6 n/a n/a 0.0 n/a n/a +7.3 0.0 n/a +28.1 –100.0 n/a
Ian Tyler
2
n/a n/a n/a n/a n/a n/a –65.2 –8.8 n/a +1.1 +8.9 n/a +3.6 –64.7 n/a
Lord Mark Sedwill
2
–25.5 –100.0 n/a +597.4 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Average employee
3
+4.5 +4.5 +2.8 +6.0 +6.0 +63.3 +4.5 +4.5 +9.2 +1.5 +1.5 +28.4 +2.5 +2.5 –2.0
1. Where figures are £nil (as is often the case for non-executive directors), the percentage change is shown as n/a.
2. Remuneration reflects part-years as follows: 2019 remuneration for Stephen Pearce and Nicole Piasecki; 2020 remuneration for Brad Greve, TomArseneault,
NickAnderson and Jane Griffiths; 2021 remuneration for Crystal E Ashby, Dame Carolyn Fairbairn and Ewan Kirk; 2022 remuneration for Cressida Hogg, Lord Mark
Sedwill, Dame Carolyn Fairbairn and Ian Tyler; 2023 remuneration for Angus Cockburn and Sir Roger Carr; 2024 remuneration for Lord Mark Sedwill.
3. Figures in respect of the median average employee are determined on a full-time equivalent basis with annual bonus estimated based on the expected financial
outturnfor 2024.
120 BAE Systems plc  Annual Report 2024
Directors’ report
Pay ratio in relation to the Group Chief Executive
The table below provides the ratio between the ‘single figure’ of remuneration for the Chief Executive and the total remuneration
ofUKemployees at the upper quartile (75th percentile), median (50th percentile) and lower quartile (25th percentile).
Pay ratio
Year Method
25th percentile Median 75th percentile
2024 B 232:1 183:1 157:1
2023 B 264:1 191:1 181:1
2022 B 256:1 185:1 168:1
2021 B 171:1 140:1 99:1
2020 B 121:1 103:1 89:1
2019 B 90:1 72:1 59:1
2018 B 61:1 48:1 38:1
£ 25th percentile 50th percentile 75th percentile
Total pay and benefits £50,310 £63,839 £74,612
Base pay £39,543 £49,444 £56,112
Pay ratio commentary
Between 2023 and 2024 the ratio of total remuneration for the Chief Executive compared to UK employees has reduced. This is principally
theresult of the total remuneration of the Chief Executive being lower when compared with the previous year. In considering the median
payratio since 2018, the general upward trend corresponds to improving financial performance, resulting in increased annual and long-term
incentiveoutcomes.
The Chief Executive’s total remuneration comprises a significant proportion in variable pay and therefore varies considerably depending
onperformance and the outturn of the annual and long-term incentive plans. The other employees typically receive a higher proportion
offixed pay and therefore their total remuneration is less variable with financial performance. The ratio at each of the three quartile positions
isconsistent with our pay, reward and progression policies, with the ratio increasing as the Chief Executive’s remuneration is compared with
that of more junior employees.
Methodology
The Companies (Miscellaneous Reporting) Regulations 2018 permit different options for calculating the pay ratio. We have chosen Option B
forcalculating the pay ratio for 2024, consistent with our gender pay reporting which is considered the most appropriate methodology for
reporting. The total full-time equivalent pay and benefits for the relevant employees have been calculated on the same basisas the
ChiefExecutive’s ‘single figure’ of remuneration as at 31 December 2024. For pension-related benefits, employer pension costshave
beenestimated using the employer contribution rates applicable to the member’s pension plan. No other estimates or adjustments
havebeenusedin the calculation and no remuneration items have been omitted.
Bonus amounts for 2024 are not able to be calculated for some eligible employees until after publication of this report and, therefore,
itisnotpossible to determine exact 2024 total remuneration for all UK employees within this timescale which is required for Option A.
To ensure a sufficiently robust representation at each quartile, we calculate the average total pay and benefits of a number of employees
centred around each quartile. Any anomalies arising in the pay and benefit amounts (for example, if an employee left part way through
theyear) are adjusted orexcluded.
Gender and ethnicity pay
The 2024 UK gender pay gap and ethnicity pay gap reports are available on the Company’s website. The average (mean) gender pay gap
forour UK workforce was 7.6% (2023 7.7%). The average (mean) ethnicity pay gap for our UK workforce was 5.9% (2023 3.9%).
121
BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Annual remuneration report continued
Total Shareholder Return (TSR) performance and Chief Executive pay
The chart below shows the value as at 31 December 2024 of £100 invested in BAE Systems shares on 31 December 2014, compared to £100
invested in the FTSE 100 on the same date. If invested in BAE Systems that shareholding would be worth £354.42 on 31 December 2024,
compared to £182.85 if invested in the FTSE 100.
The FTSE 100 was chosen as the comparator because it is a broad equity index of which BAE Systems is a constituent member and reflects
theinvestment interests of our UK shareholder base. In addition, comparative performance with the FTSE 100 forms part of the performance
measure for Long-Term Incentive (LTI) awards.
Value at 31 December 2024 of £100 investment at 31 December 2014
2014 2015 2016 2017
1
2018 2019 2020 2021 2022 2023 2024
£0
0
£50
£100
2,000
£150
4,000
£200
£250
£300
£400
Value of £100 invested on
31 December 2014
Chief Executive total remuneration (£’000)
8,000
10,000
6,000
BAE Systems
FTSE 100
Chief Executive
remuneration
12,000
16,000
14,000
£350
Change in Chief Executive’s remuneration over ten years
2015 2016 2017
1
2018 2019 2020 2021 2022 2023 2024
Chief Executive totalremuneration(£’000)
Charles Woodburn – – 1,279 2,416 3,747
2
6,080 7,071 12,008 13,451 11,681
Ian King 2,929 3,463 2,086 n/a n/a n/a n/a n/a n/a n/a
2,929 3,463 3,365 2,416 3,747
2
6,080 7,071 12,008 13,451 11,681
Bonus paid as a percentage ofmaximum
Charles Woodburn – – 75.8% 65.6% 95.6% 78.7% 97.1% 97.5% 98.4% 98.5%
Ian King 72.4% 82.3% 75.9% n/a n/a n/a n/a n/a n/a n/a
LTI vesting as a percentage ofmaximum
Charles Woodburn – – – nil 10.9%
2
100% 57.9% 100% 97.9% 95.6%
Ian King nil nil 11.3% – – – – – – –
1. In 2017, Charles Woodburn succeeded Ian King as Chief Executive. Ian King’s remuneration is shown from thestart of 2017 until 30 June 2017 and Charles
Woodburn’s remuneration is shown from 1 July 2017 to the end of thatyear.
2. Total remuneration includes the value of share plans vesting that were granted prior to appointment as Chief Executive.
Relative importance of spend on pay
The chart below shows the relative importance of expenditure on pay
1
compared to returns toshareholders
2
. Underlying EBIT
3
is shown
forinformation.
Underlying EBIT
£0m
£2,000m
£4,000m
£6,000m
£8,000m
£10,000m
2023
£2,682m
£3,015m
2024
Returns to shareholders
2023
£1,418m
£1,492m
2024
Total employee costs
2023
£8,091m
£9,252m
2024
1. Wages and salaries increased by approximately 5.44% per employee in 2024, excluding the impact of exchange translation.
2. Returns to shareholders comprise dividends to ordinary shareholders paid in the year and share repurchases in 2023 (£561m) and 2024 (£555m).
3. Underlying EBIT is the Group’s principal measure of operational profitability as defined in the Alternative performance measures section on page 220.
122 BAE Systems plc  Annual Report 2024
Directors’ report
Remuneration for employees below the Board
General Remuneration policy
Our Remuneration policy aims to ensure all employees are rewarded fairly and appropriately for their contribution, to attract and retain
thebest talent with competitive market pay and a range of useful benefits for employees and their families.
This means our total reward packages include a competitive level of base pay, short-term and long-term incentives (where applicable)
toshareour success with employees and a range of health, wealth and lifestyle benefits aligned with the relevant local markets.
Summary of our remuneration structure and rationale for employees below the Board
Remuneration element
Executive
Committee
Senior
executives
Middle
management
Wider
workforce
Base pay Provides a fixed level of earnings, appropriate to the market and requirements of the role.
Normally reviewed annually with increases ordinarily in line with the wider workforce in
thesame locality.
Provides a fixed level
of earnings, subject
tonegotiation with
recognised trades
unions, and/or in line
with market and/or
performance.
Pension
andbenefits
To assist employees in their duties, by providing a range of health, wealth and lifestyle benefits, including retirement
savings, in line with the relevant local market.
Annual bonus Cash Incentivises and rewards the achievement of
annual financial performance and the delivery
of key strategic objectives.
Incentivises and rewards the achievement
of annual financial performance and
personal objectives and behaviours.
Typically rewards
business results and
individual/team
achievements
(UKonly).
Deferral Compulsory deferral of part of annual bonus into shares,
increasingalignment with long-term shareholder interests
(UKandInternational only).
Long-term
incentives/
Share
ownership
Free shares Eligible employees receive an annual award of free shares (or cash equivalent in some countries), based
onGroupfinancialperformance.
Share
Incentive Plan
(SIP)
Eligible employees may receive free matching shares when investing their own money in the Company SIP
orinternationalequivalent.
Performance
Shares
Performance Shares are dependent upon three-year performance
conditions, providing a direct and transparent link between executive
pay and the delivery of long-term performance.
Restricted
Shares
Restricted Shares are predominantly provided in the US to be market
competitive; and are subject to remaining employed forthreeyears
from the grant date.
Engagement with key stakeholders
In line with our commitment to full transparency and engagement with our shareholders on executive remuneration, the Chair of the
Remuneration Committee periodically consults with shareholders and shareholder representative bodies to seek feedback on executive
paymatters and any contemplated changes to the Remuneration policy or structure. In particular, when considering the proposed changes
tothe 2025 Remuneration policy, the Committee Chair engaged directly with major shareholders to seek their views. The feedback received
wasshared with all Committee members and proved extremely valuable in helping the Committee determine its finalproposals.
This report is the principal means through which we communicate and engage with employees regarding executive remuneration alignment
with the wider workforce. Over 58,000 of the Company’s employees are shareholders in the Company and they receive email communications
with a direct link to this report on the Company’s website and an invitation to vote on the resolutions being put to the Annual General
Meeting (AGM), including those resolutions on executive remuneration.
Effective engagement enables employees to contribute to improving business performance and helps us to create an environment in
whicheveryone is safe, valued and can fulfil their potential. We used a range of channels to engage with employees during 2024, including
surveys and insight sessions, in-person and virtual meetings, briefings, conferences, toolbox talks, safety and security stand-downs, events
and listening forums at all levels. Additionally, employee share and incentive plan communications, regular leadership updates through
videosand live-streaming throughout the year (including financial and business performance updates), and digital channels including
ouremployee app, intranet,email and TV systems were also used.
123
BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Annual remuneration report continued
Remuneration Committee composition and advisers
The Committee members comprise Nicole Piasecki (Chair), Angus Cockburn, Dame Elizabeth Corley and Ewan Kirk. Committee attendance
isshown on page 70. Advisers to the Remuneration Committee are shown below.
During the year under review, the Committee received material assistance and advice on remuneration policy from the Group Reward
Director, Roger Fairhead, and the Group Human ResourcesDirector, Tania Gandamihardja. Charles Woodburn in his role as Chief Executive
and Brad Greve as Chief Financial Officer alsoprovided input that was of material assistance to the Committee.
Adviser Services provided Appointment Governance
Fees (in respect of services
provided to the Committee)
PricewaterhouseCoopers
(PwC)
From November 2024,
independent adviser to
theCommittee, including
attendance at Remuneration
Committee meetings.
Committee
appointment.
By the Company
attherequest of
theCommittee.
The Committee is aware that PwC provides
other services to the Company, including
taxand pensions advice. PwC also provides
arange of consultancy services.
The Committee is satisfied that the PwC LLP
engagement partner and team who provide
remuneration advice to the Committee do
not have connections with the Group or the
individual directors that could impair their
independence or objectivity.
PwC is a member of the Remuneration
Consultants Group (RCG) and is a signatory
tothe RCG’s code of conduct.
£33,700
Fee basis: Fixed fee/
hourly
Willis Towers Watson
(WTW)
Until October 2024,
independent adviser
totheCommittee, including
attendance at Remuneration
Committee meetings.
Also provided information
onremuneration market
practice, market trends
andbenchmarking of
remuneration for the
seniorexecutive population.
Committee
appointment.
By the Company
attherequest of
theCommittee.
The Committee is aware that WTW provides
unrelated services to theCompany in the
areas of benefits andpensions advice.
The Committee is satisfied that the
WTWlead adviser and team who provided
remuneration advice to the Committee do
not have connections with the Group or the
individual directors that could impair their
independence or objectivity.
WTW is a member of the Remuneration
Consultants Group (RCG) and is a signatory
tothe RCG’s code of conduct.
£58,333
Fee basis: Fixed fee/
hourly
Statement of voting
Shareholder voting on the resolutions to approve the Annual remuneration report at the 9 May 2024 AGM and the Directors’ Remuneration
policy at the 4 May2023 AGM were:
Annual remuneration report (2024)
Votes for % Votes against % Total votes cast
Votes withheld
(abstentions)
2,104,688,229 97.33 57,820,584 2.67% 2,162,508,813 10,670,190
Directors’ Remuneration policy (2023)
Votes for % Votes against % Total votes cast
Votes withheld
(abstentions)
2,150,307,412 97.61 52,732,857 2.39 2,203,040,269 5,851,354
THE 2023 DIRECTORS’ REMUNERATION POLICY APPROVED AT THE 2023 AGM IS AVAILABLE ON THE COMPANY’S WEBSITE AT WWW.BAESYSTEMS.COM/REMPOLICY
124 BAE Systems plc  Annual Report 2024
Directors’ report
January
 Committee (Videoconference)
– Assessed outturn of 2023 key
strategicobjectives.
– Agreed 2024 key strategicobjectives.
– Received an update on provisional
2023financialperformance for incentive
planpurposes.
– Approved 2024 base pay increases
forExecutiveCommittee members.
February
 Committee (London, UK)
– Determined 2023 bonuses for executive
directorsand Executive Committee members
forpayment in March 2024.
– Approved 2023 Group All-Employee Free
SharesPlan award.
– Determined vesting outcome for 2021
long-term incentive awards.
– Approved grant of 2024 long-term incentive
awards and associated performance targets.
– Approved 2023 Directors’ remunerationreport.
June
 Committee (Washington, USA)
– Reviewed AGM voting outcomes.
– Considered market practice and internal
relativities for incentive opportunity and
remuneration of executive directors and
othersenior executives.
– Considered Remuneration policy changes
tosimplify and improve competitiveness.
September
 Committee (Colorado, USA)
– Determined the approach for seeking
shareholder feedback on proposed
Remuneration policy changes.
– Noted considerations for remuneration
changesfor other executives.
November
 Committee (West Sussex, UK)
– Received an update on gender and ethnicity
paygaps.
– Noted the performance update on
annualincentive and in-flight long-term
incentive awards.
December
 Committee (London, UK)
– Considered shareholder feedback on
Directors’ Remuneration policy proposals
andextended the consultations.
– Approved executive directors’ base pay
increases from 1 January 2025.
– Agreed the structure, weightings and financial
metricsfor the 2025 annual incentiveplan.
– Agreed the structure, weightings andmetrics
for 2025 long-term incentive awards.
The Remuneration Committee’s year
Directors’ Remuneration Report
The Directors’ Remuneration Report was approved by the Board of directors on 18 February 2025.
Nicole Piasecki
Chair, Remuneration Committee
FebruaryJanuary June September November December
CommitteeCommitteeCommitteeCommittee Committee Committee
125BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Other information that is relevant to the Directors’ report, andwhich
isincorporated by reference into this report
Further information Reference
Disclosures in relation to the use
offinancialinstruments
FINANCIAL STATEMENTS PAGE 173
Particulars of important events affecting
theGroupwhich have occurred since
31 December2023
CHIEF EXECUTIVE’S REVIEW PAGE 6
SEGMENTAL REVIEW PAGE 37
An indication of likely future developments
inthebusiness of the Group
CHIEF EXECUTIVE’S REVIEW PAGE 6
OUR INVESTMENT IN TECHNOLOGY PAGE 20
SEGMENTAL REVIEW PAGE 37
An indication of the activities of the Group
inthefield of R&D
OUR BUSINESS MODEL PAGE 10
Actions taken to introduce, maintain or
developarrangements aimed at employees
OUR INVESTMENT IN
PEOPLE AND COMMUNITIES PAGE 24
GHG emissions
CLIMATE AND THE ENVIRONMENT PAGE 50
Employee engagement (including regarding
employee interests and encouraging
employees tobe shareholders)
OUR INVESTMENT IN
PEOPLE AND COMMUNITIES PAGE 24
Fostering business relationships with
suppliers,customers and others
OUR STAKEHOLDERS PAGE 76
Policy in relation to employment
ofdisabledpersons
OUR INVESTMENT IN
PEOPLE AND COMMUNITIES PAGE 27
Details of long-term incentive schemes
DIRECTORS’ REMUNERATION REPORT PAGE 109
Statutory and other regulatory information
Company registration
BAE Systems plc is a public company limited
by shares registered in England and Wales
with the registered number 01470151.
Directors
The directors who served during the 2024
financial year are listed on pages 69 to 71.
Lord Sedwill also served during the year,
retiring as a director on 10 September 2024.
Dividend
An interim dividend of 12.4p per share was
paid on 2 December 2024. On 18 February,
the directors proposed a final dividend
of20.6p per ordinary share. Subject to
shareholder approval, the final dividend
willbe paid on 2 June 2025 to shareholders
on the share register on 22 April 2025.
AGM
The Company’s 2025 AGM is scheduled
tobeheld on 7 May 2025.
Disclosures required under
UKListingRule 6.6
There are no disclosures required to be
madeunder UK Listing Rule 6.6 which have
not already been disclosed elsewhere in this
Report. Details of long-term incentives can
be found within the Annual remuneration
report on page 109 and details of dividend
waivers can be found in note 26 of the
Consolidated financial statements on
page196.
Office of Fair Trading undertakings
As a consequence of the merger between
British Aerospace and the former Marconi
Electronic Systems businesses in 1999, the
Company gave certain undertakings to the
Secretary of State for Trade and Industry
(now the Secretary of State for Business
andTrade). In February 2007, the Company
was released from the majority of these
undertakings and the remainder have
beensuperseded and varied by a new set
ofundertakings. Compliance with the
undertakings is monitored by a compliance
officer. Further information regarding the
undertakings and the contact details of
thecompliance officer may be obtained
through the Company Secretary at the
Company’s registered office or through
theCompany’s website.
126
BAE Systems plc  Annual Report 2024
Directors’ report
Trades Unions
We have structures in place to work with
Trades Union representatives in our local
markets, where it is appropriate and legally
acceptable. Of our UK workforce, 67% are
covered by collective bargaining agreements.
Approximately 55% of the UK workforce
areTrades Union members. In the US,
approximately 9% of the workforce is
covered by a collective bargaining agreement.
In Australia, approximately 20% of the
workforce is covered by a collective
bargaining agreement.
Profit forecast
In its Half-yearly results announcement
published on 1 August 2024, the Group
made the following statement in respect
ofthe year ending 2024, which is regarded
as aprofit forecast for the purposes of
UKListing Rule 6.2.23 and which replaced
the profit forecast made in the Company’s
2023 Annual Report:
“While the Group is subject to geopolitical
and other uncertainties, the Group guidance
is provided on current expected operational
performance. The guidance is based on the
measures used to monitor the underlying
financial performance of the Group.
Underlying EBIT guidance is increased by
100bps to 12% to 14% reflecting the sales
profile and strong operational performance.
Underlying earnings per share guidance is
increased by 100 bps to 7% to 9% aligned
tounderlying EBIT.
The Group guidance for 2024 incorporates
the acquisition of Ball Aerospace and the
reduction in the Group’s shareholding in
AirAstana following its initial public offering,
both of which completed in February 2024.
Guidance is provided on a constant currency
basis using an exchange rate of $1.24:£1,
which is in line with the actual 2023
exchange rate.”
For the year ended 31 December 2024,
Underlying EBIT was £3,015m and
Underlying earnings per share was 68.5p.
See Financial review on page 30 for
moreinformation.
Political donations
During 2024, the Company did not: (i) make
any political donations to a UK political party,
other UK political organisation or any UK
independent election candidate and/or incur
any UK political expenditure; or (ii) make any
contribution to a non-UK political party.
It remains the policy of the Company not
tomake any political donations or incur
political expenditure within the normal
understanding of those terms and the
Company has no intention of altering this
policy. However, the definitions of ‘political
donation’ and ‘political expenditure’ within
the UK Companies Act 2006 are very wide
and potentially capture activities that would
not be ordinarily considered to be such but
form part of the Company’s usual business
engagement with key stakeholders and
allow the Company to participate in public
debate and opinion-forming on matters
which affect its business. Consequently,
toavoid inadvertent infringement of the
UKCompanies Act 2006, authority will
besought from shareholders at the 2025
AGM to make political donations and incur
political expenditure up to a specified limit
(as has been done in prior years).
In accordance with the US Federal Election
Campaign Act, BAE Systems, Inc. provides
administrative support to a federal Political
Action Committee (PAC) in the US, funded
by the voluntary political contributions of
eligible employees. The PAC is not funded by
BAE Systems, Inc. and all decisions regarding
the amounts and recipients of contributions
are directed byaBoard of Trustees
comprising employees eligible to contribute
to the PAC.Contributions to political
organisations reported by the PAC during
2024 totalled $559,000 (2023 $682,000).
Distributable reserves
As at 31 December 2024, the distributable
reserves of the Company were £2,130m
(2023£1,993m).
Issued share capital
As at 31 December 2024, BAE Systems’
issued share capital of £79,877,649
comprised 3,195,105,949 ordinary shares
of2.5p each and one Special Share of £1.
Share buyback
During the year, 43,121,336 ordinary shares
of 2.5p each were repurchased under the
buyback programme of up to £1.5bn
announced on 28 July 2022 (which was
completed on 24 July 2024) and under
thebuyback programme of up to £1.5bn
announced on 2 August 2023 (which
commenced on 25 July 2024) and such
repurchased shares have been cancelled.
Thetotal consideration for the purchase
ofthese shares, including commission
andstamp duty, was £551,833,967.
The percentage of called up share
capital(excluding treasury shares) as
at31 December 2024, which the shares
repurchased in 2024 represents, is 1.35%.
Treasury shares
As at 1 January 2024, the number of shares
held in treasury totalled 204,041,705
(havinga total nominal value of £5,101,043
and representing 6.3% of the Company’s
called up share capital as at 31 December
2023). During 2024, the Company used
20,367,966 treasury shares (having a total
nominal value of £509,199 and representing
0.64% of the Company’s called up share
capital as at 31 December 2024) to satisfy
awards under the Company’s Free and
Matching elements of the Share Incentive
Plan (3,456,594 shares in aggregate), awards
under the Free and Matching elements of
the International Share Incentive Plan
(146,495 shares in aggregate), awards vested
under the Performance Shares element of
the Long-Term Incentive Plan (8,200,751
shares), awards vested under the Restricted
Shares element of the Long-Term Incentive
Plan (1,972,692 shares) and options exercised
under the Share Options element of the
Long-Term Incentive Plan andExecutive
Share Option Plan (6,419,939 shares).
Thetreasury shares utilised in respect of
theShare Incentive Plan, the International
Share Incentive Plan, and the Performance
and Restricted Shares elements of the
Long-Term Incentive Plan were disposed
ofby the Company for nil consideration.
Asat 31 December 2024, 183,673,739
Ordinary shares of the issued share capital
were held in treasury. The 6,419,939 shares
disposed of by the Company in respect of
theShare Options element of the Long-Term
Incentive Plan andthe Executive Share
Option Plan weredisposed of by the
Company for an aggregate consideration
of£32,457,056.
127
BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Statutory and other regulatory information continued
Asat 31 December 2024, the number
ofshares held in treasury totalled
183,673,739 (having a total nominal value
of£4,591,843 and representing 5.7%
oftheCompany’s called up share capital
at31 December 2024).
The rights to treasury shares are restricted
inaccordance with the Companies Act
and,in particular, the voting and dividend
rights attaching to these shares are
automatically suspended.
Rights and obligations
ofordinaryshares
The full rights attaching to shares are set
outin the Company’s Articles of Association.
Currently, the voting rights of each ordinary
share carry one vote at a general meeting
ofthe Company. Subject to the relevant
statutory provisions and the Company’s
Articles of Association, holders of ordinary
shares are entitled to a dividend where
declared or paid out of profits available
forsuch purposes. Subject to the relevant
statutory provisions and the Company’s
Articles of Association, on a return of capital
on a winding-up, holders of ordinary shares
are entitled, after repayment of the £1
Special Share, to participate in such a return.
There are no redemption rights in relation
tothe ordinary shares.
Rights and obligations
oftheSpecialShare
In the interests of national security, a Special
Share is held on behalf of the Secretary of
State for Business and Trade (the Special
Shareholder). Certain provisions of the
Company’s Articles of Association cannot be
amended without the consent of the Special
Shareholder. These provisions include the
requirement that:
– no foreign person, or foreign persons
acting in concert, can have more than
a15% voting interest in the Company;
– the majority of the directors (including
anyalternate directors) must be British
citizens, British Overseas Territories
citizensor British Overseas citizens by
virtue of the British Nationality Act 1981
(British Citizens);
– any Chief Executive or Executive Chair
must be a British Citizen; and
– if the Company has a Non-Executive Chair
and a Non-Executive Deputy Chair, then
one of them must be a British Citizen.
The holder of the Special Share is entitled to
attend a general meeting, but the Special
Share carries no right to vote or any other
rights at any such meeting, other than to
speak in relation to any business in respect
ofthe Special Share. Subject to the relevant
statutory provisions and the Company’s
Articles of Association, on a return of capital
on a winding-up, the holder of the Special
Share shall be entitled to repayment of the
£1 capital paid up on the Special Share in
priority to any repayment of capital to any
other members.
The holder of the Special Share has the right
to require the Company to redeem the
Special Share at par or convert the Special
Share into one ordinary share at any time.
Restrictions on transfer of securities
The restrictions on the transfer of shares
inthe Company are as follows:
– the Special Share may only be issued to,
held by and transferred to the Special
Shareholder or their successor or nominee;
– the directors shall not register any
allotment or transfer of any shares to a
foreign person, or foreign persons acting
in concert, who at the time have more than
a 15% voting interest in the Company, or
who would, following such allotment or
transfer, have such an interest;
– the directors shall not register any person
as a holder of any shares unless they have
received: (i) a declaration stating that upon
registration, the share(s) will not be held
byforeign persons or that upon registration
the share(s) will be held by a foreign person
or persons; (ii) such evidence (if any) as the
directors may require of the authority of
the signatory of the declaration; and (iii)
such evidence or information (if any) as to
the matters referred to in the declaration
as the directors consider appropriate;
– the directors may also refuse to register
any instrument of transfer of shares unless
the instrument of transfer is in respect of
only one class of share and it is lodged at
the place where the register of members is
kept, accompanied by a relevant certificate
or such other evidence as the directors
may reasonably require to show the right
of the transferor to make the transfer;
– the directors may refuse to register an
allotment or transfer of shares in favour
ofmore than four persons jointly;
– where a shareholder has failed to provide
the Company with certain information
relating to their interest in shares, the
directors can, in certain circumstances,
refuse to register a transfer of such shares;
– certain restrictions may from time to
timebe imposed by laws and regulations
(for example, insider trading laws);
– restrictions may be imposed pursuant to
the UK Listing Rules whereby certain of the
Group’s employees require the Company’s
approval to deal in shares; and
– awards of shares made under the
Company’s Long-Term Incentive Plan
2023, Long-Term Incentive Plan 2014,
Deferred Bonus Plan, Share Incentive Plan,
International Share Incentive Plan, Group
All-Employee Free Shares Plan and
International Profit Sharing Scheme are
subject to restrictions on the transfer of
shares prior to vesting and/or release.
The Company is not aware of any
arrangements between its shareholders
thatmay result in restrictions on the
transferof shares and/or voting rights.
Significant direct and indirect
holdersof securities
Information provided to the Company by
substantial shareholders (holding voting
rights of 3% or more in the Company)
pursuant to the UK Disclosure Guidance and
Transparency Rules (DTRs) are published via
aRegulatory Information Service and is
available on the Company’s website. Up to
31 December 2024, the Company had been
advised of the following significant direct
and indirect interests in the voting rights
attached to its shares:
Name of investor
Date of
disclosure
Percentage
of total
voting
rights
notified
1
BlackRock, Inc. 29 June 2021 9.90%
The Capital Group
Companies, Inc. 22 August 2023 12.98%
FMR LLC
2
29 July 2024 5.01%
Investco Limited 04 April 2017 4.97%
Silchester International
Investors Limited 24 June 2011 3.01%
1. The percentage of voting rights detailed above was
calculated at the time of the relevant disclosures
made in accordance with Rule 5 of the DTRs.
2. On 21 October 2024, it was announced
thatFMRLLC had notified the Company that
itsholding in the Company had decreased from
5.01%to 4.96%. On 22 October 2024, FMR LLC
notified the Company that, due toaprocessing
error, the notification it provided to the Company
on 21 October wasincorrect and that FMR LLC’s
holding didnot fall below the 5% threshold.
Between 31 December 2024 and
18February 2025 (being the latest
practicable date for inclusion in this
report),the Company had not received
anyadditional notifications pursuant to
Rule5 of the DTRs.
128
BAE Systems plc  Annual Report 2024
Directors’ report
Exercise of rights of shares
inemployee share schemes
The trustees of the employee trusts do not
seek to exercise voting rights on shares held
in the employee trusts other than on the
direction of the underlying beneficiaries.
Novoting rights are exercised in relation to
shares unallocated to individual beneficiaries.
The trustees of the employee trusts also
waive their entitlement to receive dividends
inrespect of shares that are the beneficial
property of the trusts.
Restrictions on voting deadlines
The notice of any general meeting shall
specify the deadline for exercising voting
rights and appointing a proxy or proxies to
vote in relation to resolutions to be proposed
at the general meeting. The number of proxy
votes for, against or withheld in respect of
each resolution are publicised on the
Company’s website after the meeting.
Appointment and replacement
ofdirectors
Subject to the nationality requirements
outlined under Rights and obligations of
theSpecial Share on page 196 and in the
Company’s Articles of Association, the
Company may by ordinary resolution
appoint any person to be a director.
The directors also have the power to
makeappointments to the Board at any
time. Any individual so appointed will hold
office until the next AGM and shall then
beeligible for election or re-election.
The Company must have not less than six
directors holding office at all times. If the
number is reduced to below six, then such
number of persons shall be appointed as
directors as soon as is reasonably practicable
to reinstate the number of directors to six.
The Company may by ordinary resolution
from time to time vary the minimum number
of directors.
All directors will stand for election or
re-election in 2025 as required by the
Company’s Articles of Association and
incompliance with the Code.
Amendment of the Company’s
Articles of Association
The Company’s Articles of Association may
only be amended by a special resolution at
ageneral meeting of shareholders. Where
class rights are varied, such amendments
must be approved by the members of each
class of shares separately.
In addition, certain provisions of the Articles
of Association cannot be amended without
the consent of the Special Shareholder.
These provisions include the requirement
that no foreign person, or foreign persons
acting in concert, can have more than a
15%voting interest in the Company, the
requirement that the majority of the
directors are British, and the requirement
that the Chief Executive or any executive
Chair are British.
Powers of the directors
The directors are responsible for the
management of the business of the Company
and may exercise all powers of the Company
subject to applicable legislation and
regulation, and the Articles of Association.
At the 2024 AGM, the directors were given
the power to buy back a maximum number
of 302,815,089 ordinary shares at a minimum
price of 2.5p each. The maximum price was
the higher of (i) an amount equal to 105% of
the average of the middle market quotations
of the Company’s ordinary shares as derived
from the London Stock Exchange Daily
Official List for the five business days
immediately preceding the day on which
such ordinary shares are contracted to be
purchased, and (ii) the higher of the price of
the last independent trade and the highest
current independent bid on the London
Stock Exchange.
This power will expire at the earlier of the
conclusion of the 2025 AGM or, if earlier,
atthe close of business on 30 June 2025.
Aspecial resolution will be proposed at
the2025 AGM to renew the Company’s
authority to acquire its own shares.
At the 2024 AGM, the directors were
giventhe power to issue new shares up to a
nominal amount of £25,232,067. This power
will expire on the earlier of the conclusion
ofthe 2025 AGM or, if earlier, at the close
ofbusiness on 30 June 2025. Accordingly,
aresolution will be proposed at the 2025
AGM to renew the Company’s authority
toissue further new shares.
Conflicts of interest
As permitted under the Companies Act
2006, the Company’s Articles of Association
contain provisions which enable the Board
toauthorise conflicts or potential conflicts
that individual directors may have.
To avoid potential conflicts of interest the
Board requires the Nominations Committee
to check that any individual it nominates for
appointment to the Board is free of potential
conflicts. In addition, the Board’s procedures
and the induction programme for new
directors emphasise a director’s personal
responsibility for complying with the duties
relating to conflicts of interest. The procedure
adopted by the Board for the authorisation
of conflicts reminds directors of the need
toconsider their duties as directors and not
grant an authorisation unless they believe,
ingood faith, that this would be likely to
promote the success of the Company.
Asrequired by law, the potentially conflicted
director cannot vote on an authorisation
resolution or be counted in the quorum.
Anyauthorisation granted may be terminated
at any time and the director is informed of
the obligation to inform the Company
without delay should there be any material
change in the nature of the conflict or
potential conflict so authorised.
Directors’ indemnities
The Company has entered into deeds
ofindemnity with all of its current directors
and those persons who were directors
forany part of 2024 which are qualifying
indemnity provisions for the purpose of
theCompanies Act 2006.
The directors of BAE Systems Pension Funds
Trustees Limited, BAE Systems 2000 Pension
Plan Trustees Limited, BAE Systems Executive
Pension Scheme Trustees Limited and
AlvisPension Scheme Trustees Limited
benefit from indemnities in the governing
documentation of the BAE Systems Pension
Scheme, the BAE Systems 2000 Pension Plan,
the BAE Systems Executive Pension Scheme
and the Alvis Pension Scheme, respectively,
which are qualifying indemnity provisions
forthe purpose of the Companies Act 2006.
All such indemnity provisions are in force
asat the date of this Directors’ report.
129
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Financial statements Additional informationGovernanceStrategic report
Statutory and other regulatory information continued
Change of control –
significantagreements
The following significant agreements contain
provisions entitling the counterparties to
exercise termination, alteration or other
similar rights in the event of a change of
control of the Company:
Group
– The Company, BAE Systems, Inc.,
BAESystems (Holdings) Limited and
BAESystems Holdings Inc. entered into
arenewed SSA, effective date of 5 January
2023, with theUS Department of Defense
regarding the management of BAE
Systems, Inc. in order to comply with the
US Government’s national security
requirements. In the event of a change of
control of the Company, the Agreement
may be terminated or altered by the US
Department of Defense.
– The Company and BAE Systems Holdings
Inc. have entered into a £2bn RCF dated
27 September 2023. The facility provides
that, in the event ofachange of control
ofthe Company, thelenders are entitled
torenegotiate terms, or if no agreement
isreached on negotiated terms within a
certain period, to call for the repayment
orcancellation ofthe facility. The RCF
wasundrawn as at 31 December 2024.
Platforms & Services
– In May 2023, BAE Systems Hägglunds AB
entered into a contract with Försvarets
Materielverk and the Ministry of Defence
of the Czech Republic (MoD Czech
Republic) for the manufacture of
246CV90 MkIV infantry fighting vehicles.
Thecontract provides that any change
ofcontrol of BAE Systems Hägglunds AB
(or its direct or indirect holding
company)is subject to the MoD Czech
Republic’s consent.
Air
– The Company has entered into a Restated
and Amended Shareholders Agreement
with European Aeronautic Defence and
Space Company EADS N.V. (EADS) and
Finmeccanica S.p.A. (Finmeccanica)
relating to MBDA S.A.S. dated
18 December 2001 (as amended). In the
event that control of the Company passes
to certain specified third-party acquirors,
the agreement allows EADS and
Finmeccanica to exercise an option to
terminate certain executive management
level nomination and voting rights, and
certain shareholder information rights
ofthe Company in relation to the MBDA
joint venture. Following the exercise of
thisoption, the Company would have
theright to require the other shareholders
to purchase its interest in MBDA at fair
market value. The Company and EADS
have agreed that, if Finmeccanica acquires
a controlling interest in the Company,
EADS will increase its shareholding in
MBDA to 50% by purchasing the
appropriate number of shares in MBDA
atfair market value.
– In April 2019, BAE Systems (Operations)
Limited, Rolls Royce, MBDA and
Leonardoentered into a contract with
theUK Ministry of Defence (MoD) for
theTempest Programme to develop
andmature future combat air-related
technologies and concepts. Since then
further contract funding has been
awarded. This contract provides that
where the MoD has any concerns about
the actual or proposed change of control
of BAE Systems (Operations) Limited
(oritsdirect or indirect holding company),
which may include, but is not limited to,
suchchange of control having an impact
on the reputation or public perception
ofthe MOD or national security, then the
MoD shall advise the contractor in writing
of any concerns it may have and the MoD
may terminate the contract.
– In June 2021, BAE Systems (Operations)
Limited entered into a contract with the
MoD for the Future Combat Air System
Acquisition Programme Concept and
Assessment Phase Contract to advance
theconcepting and technology of the
next-generation Combat aircraft. In 2023,
additional MoD funding of approximately
£800m was awarded. This contract
provides that where the MoD has any
concerns about the actual or proposed
change of control of BAE Systems
(Operations) Limited (or its direct or
indirect holding company), which may
include, but is not limited to, potential
threats of national security, then the
MoDshall advise the contractor in writing
of any concerns it may have. The MoD
mayterminate the contract within
sixmonths of it being notified of such
actual or proposed change of control.
– In March 2022, the Hawk Integrated
Support contract was entered into
between BAE Systems (Operations)
Limited and the MoD for the provision of
support services to the Royal Air Force’s
fleet of Hawk fast jet trainer aircraft and
the Royal Air Force Aerobatic Team
aircraft. Where the MoD has any concerns
about the actual or proposed change of
control of BAE Systems (Operations)
Limited (or its direct or indirect holding
company), which may include, but is not
limited to, potential threats of national
security, then the MoD shall advise the
contractor in writing of any concerns it
may have. The MoD may terminate the
contract within six months of such actual
or proposed change of control.
– In December 2024, BAE Systems (Holdings)
Limited entered into a joint venture
agreement with Leonardo S.p.A and Japan
Aircraft Industrial Enhancement Co. Ltd in
connection with GCAP. If there is a change
of control of the Company without the
consent of the other shareholders, the
agreement provides that BAE Systems
(Holdings) Limited would lose its voting
rights, its information rights and its right
tonominate directors to the board of the
GCAP joint venture company, in each case,
until the change of control is reversed.
Maritime
– In December 2011, BAE Systems Marine
Limited entered into a contract with the
MoD for the design of the Dreadnought
submarines. Where the MoD considers
that a proposed change of control of
BAESystems Marine Limited (or its direct
or indirect holding company) would be
contrary to the defence, national interest
or national security of the UK, then the
change of control shall not take place until
agreement is reached with the MoD on
how to proceed. In the event that there is
achange of control notwithstanding the
objection of the MoD on such grounds,
the MoD shall be entitled to terminate
thecontract with immediate effect.
130
BAE Systems plc  Annual Report 2024
Directors’ report
– In November 2015, BAE Systems Marine
Limited entered into a contract with the
MoD for the design, construction, testing
and commissioning of Boat 5 of the
AstuteClass programme. In March 2016,
BAE Systems Marine Limited entered into
acontract with the MoD for the design,
construction, testing and commissioning
of Boat 6 of the Astute Class Programme.
In March 2018, BAE Systems Marine
Limited entered into a contract with the
MoD for the design, construction, testing
and commissioning of Boat 7 of the
AstuteClass Programme. Where the
MoDconsiders that a proposed change
ofcontrol of BAE Systems Marine Limited
(or its direct or indirect holding company)
would be contrary to the defence, national
security or national interest of the UK, then
the change of control shall not proceed
until agreement is established with the
MoD. In the event that there is a change
ofcontrol notwithstanding the objection
of the MoD on such grounds, the MoD
shall be entitled to terminate the
agreements immediately.
– In September 2016, BAE Systems Marine
Limited entered into a contract with the
MoD for the initial phase of manufacturing
activities for the Dreadnought Class
programme. This contract was extended
and amended in March 2022 to include
continuation of manufacturing and
associated activities on all four boats
intheclass. Where the MoD considers
thataproposed change of control of
BAESystems Marine Limited (or its direct
or indirect holding company) would be
contrary to the defence, national security
or national interest of the UK, then the
change of control shall not proceed until
agreement is established with the MoD. In
the event that there is a change of control,
notwithstanding the objection of the MoD
on such grounds, the MoD shall be entitled
to terminate the agreements immediately.
– In June 2017, BAE Systems Surface Ships
Limited entered into a contract with the
MoD for the manufacture of the first batch
of three Type 26 frigates. This contract was
amended and restated in November 2022
to include the manufacture of the second
batch of five Type 26 frigates. Where the
MoD considers that a proposed change
ofcontrol of BAE Systems Surface Ships
Limited (or its direct or indirect holding
company) would be contrary to the
defence, national security or national
interest of the UK or where the change
ofcontrol would result in increased costs
to the MoD under the contract, then the
change of control shall not proceed until
agreement with the MoD is established.
Ifthere is a change of control without
notice or notwithstanding the objection
ofthe MoD on such grounds, then the
MoD may terminate the contract with
immediate effect.
– In December 2018, BAE Systems’ subsidiary,
ASC Shipbuilding Pty Limited, entered
intoa contract providing the framework
for the design and manufacture of
HunterClass frigates for the Royal
Australian Navy (Head Contract). As part
of the acquisition of ASC Shipbuilding
PtyLimited from the Commonwealth
ofAustralia (the Commonwealth),
BAESystems Australia Limited entered
intoa Sovereign Capability and Option
Deed (SCOD). Under the Head Contract
and the SCOD, if there is a change of
control of ASC Shipbuilding Pty Limited
orBAE Systems Australia Limited or, in
thecase of the Head Contract, there is
achange of control of the Company as
guarantor, consent is required from the
Commonwealth prior to any change of
control occurring. If there is a change of
control without notice or notwithstanding
an objection, the Commonwealth may
terminate the Head Contract, take any
action to mitigate an actual or potential
threat to Australia’s national security
interests, or exercise its call option under
the SCOD and regain ownership of
ASCShipbuilding Pty Limited.
– In November 2020, BAE Systems Global
Combat Systems Munitions Limited
andthe MoD entered into a 15-year
agreement for the provision of ammunition
to UK forces (the Next Generation
Munitions Solution (NGMS) agreement)
from 2023 to 2037. Where the MoD has
any concerns regarding a proposed
change of control of BAE Systems Global
Combat Systems Munitions Limited (or its
direct or indirect holding company) and
such concerns are not resolved, then if the
change of control proceeds, the MoD may
terminate the contract.
– In March 2021, BAE Systems Surface Ships
Limited and the MoD entered into the
FMSP Ships Engineering Management
andDelivery agreement for the provision
of surface ship engineering management
and delivery services relating to HM Naval
Base Portsmouth. Where the MoD
considers that a proposed change of
control of BAE Systems Surface Ships
Limited (or its direct or indirect holding
company) would be contrary to the
defence, national security or national
interest of the UK, then the change of
control shall not proceed until agreement
with the MoD is established. If there is
achange of control without notice or
notwithstanding the objection of the
MoDon such grounds, the MoD shall
beentitled to terminate the agreement.
– In June 2021, BAE Systems Australia
Limited entered into a contract providing
the framework for the provision of
in-service support for the Hawk aircraft
until June 2031. If there is a change of
control of BAE Systems Australia Limited
orBAE Systems plc without consent from
the Commonwealth, the Commonwealth
may terminate the contract.
– In June 2023, BAE Systems Marine Limited
entered into a contract with the MoD for
the funding of facilities required for the
SSN-AUKUS Class programme. In July
2023, BAE Systems Marine Limited entered
into a contract with the MoD for the
development of the design of the
SSN-AUKUS Class of submarines and
longlead item procurement for that
programme. In each contract where the
MoD considers that a proposed change
ofcontrol of BAE Systems Marine Limited
(or its direct or indirect holding company)
would be contrary to the defence, national
security or national interest of the UK, then
the change of control shall not proceed
until agreement is established with the
MoD. In the event that there is a change
ofcontrol notwithstanding the objection
of the MoD on such grounds, the
MoDshall be entitled to terminate
theagreements immediately.
– In December 2024, BAE Systems Australia
Submarines Pty Ltd signed a Tasking
Statement with the Commonwealth in
connection with theSSN-AUKUS Pillar 1
programme. TheTasking Statement is
acall-off contractfrom the Mobilisation
Deedframework arrangement that
wasentered into inNovember 2024
betweenthe Commonwealth,
BAESystems Australia Submarines Pty Ltd
and ASC SSN-AUKUS Pty Ltd. The Tasking
Statement will enable the commencement
of the development of the SSN-AUKUS
Pillar 1 programme foundations. If there
isa change of control of BAE Systems plc
without the consent of the Commonwealth,
then the Commonwealth may either:
(i)terminate the Enterprise Collaboration
Deed/Mobilisation Deed/Tasking
Statement arrangements; or (ii)agree
notto terminate subject to BAESystems
Australia Submarines Pty Ltd providing
further information, giving specified
undertakings or entering into further
agreements as may be required by
theCommonwealth.
In addition, the Company’s share plans
contain provisions as a result of which
options and awards may vest and become
exercisable on a change of control of the
Company in accordance with the rules of
theplans.
Auditor
Deloitte LLP has indicated its willingness to be
re-appointed as the Company’s auditor and
a resolution proposing its re-appointment
will be put to the 2025 AGM.
131
BAE Systems plc  Annual Report 2024
Financial statements Additional informationGovernanceStrategic report
Statutory and other regulatory information continued
Statement of directors’ responsibilities
in respect of the Annual Report and
the financial statements
The directors are responsible for preparing
the Annual Report, and the Group and parent
company financial statements in accordance
with applicable law and regulations.
Company law requires the directors to
prepare Group and parent company financial
statements for each financial year. Under
that law, they are required to prepare the
Group financial statements in accordance
with UK-adopted international accounting
standards and applicable law, and have
elected to prepare the parent company
financial statements in accordance with UK
accounting standards, including Financial
Reporting Standard (FRS) 101, Reduced
Disclosure Framework.
Under company law, the directors must not
approve the financial statements unless they
are satisfied that they give a true and fair
view of the state of affairs of the Group and
parent company, and of their profit or loss
forthat period. In preparing each of the
Group and parent company financial
statements, the directors are required to:
– select suitable accounting policies and
then apply them consistently;
– make judgements and estimates that are
reasonable, relevant, reliable and prudent;
– for the Group financial statements, state
whether they have been prepared in
accordance with IFRSs as adopted by
theUK;
– for the parent company financial
statements, state whether applicable UK
accounting standards have been followed,
subject to any material departures
disclosed and explained in the parent
company financial statements;
– assess the Group and parent company’s
ability to continue as a going concern,
disclosing, as applicable, matters related
togoing concern; and
– use the going concern basis of accounting
unless they either intend to liquidate the
Group or the parent company or to cease
operations, or have no realistic alternative
but to do so.
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the parent company and enable
them to ensure that its financial statements
comply with the Companies Act 2006.
The directors are responsible for such
internalcontrol as they determine is
necessaryto enable the preparation of
financial statements that are free from
material misstatement, whether due to
fraudor error, and have general
responsibility for taking such steps as are
reasonably opento them to safeguard the
assets oftheGroup and to prevent and
detect fraudand other irregularities.
Under applicable law and regulation,
thedirectors are also responsible for
preparing a strategic report, directors’
report,directors’ remuneration report
andcorporate governance statement that
comply with that law and regulation.
The directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
Controls over financial reporting
Through implementation of the Operational
Framework, internal control procedures are
in place to support the approval of the
financial statements of the Group.
Management is responsible for reviewing
thefinancial reports and disclosures to
ensure that they have been subject to
adequate verification and comply with
applicable standards and legislation
(including reviewing data for consolidation
into the Group’s financial statements to
ensure that it gives atrue and fair view of the
Group’s results incompliance with applicable
accounting policies). Where appropriate,
management reports its conclusions to the
Audit and Risk Committee, which debates
such conclusions and provides further
challenge. Finally, the Board scrutinises and
approves results announcements and the
Annual Report and ensures that appropriate
disclosures have been made.
This governance process ensures that both
management and the Board are given
sufficient opportunity to debate and
challenge the financial statements of the
Group and other significant disclosures
before they are made public.
Statement of disclosure
ofinformationto auditor
The directors who held office at the date
ofapproval of this Directors’ report confirm
that, so far as they are each aware, there is
no relevant audit information of which the
Company’s auditor is unaware; and each
director has taken all the steps that he/she
ought to have taken to make himself/herself
aware of any relevant audit information and
to establish that the Company’s auditor is
aware of that information.
Directors’ report
This Directors’ report was approved by the Board of directors of BAE Systems plc on 18February 2025 and signed on its behalf by:
Anthony Clarke
Company Secretary
Responsibility statement of the directors in respect
oftheAnnual Report and financial statements
Each of the directors, whose names and functions can be found on pages 69 to 71,
confirms that to the best of their knowledge:
– the financial statements, prepared in accordance with the applicable set ofaccounting
standards, give a true andfair view of the assets, liabilities, financialposition and profit
orloss oftheCompany, and the undertakings included in the consolidation taken as
awhole; and
– the Strategic report and Directors’ report (which together comprise a management
report for the purposes of DTR 4.1.8R), taken together, include a fair review of the
development and performance of the business, and the position of the Company
andthe undertakings included in the consolidation taken as a whole, together with
adescription of the principal risks and uncertainties that they face.
In addition, each of the directors considers that the Annual Report, taken as a whole,
isfair, balanced and understandable, andprovides the information necessary for
shareholders to assess the Company’s position and performance, business model
andstrategy.
On behalf of the Board
Cressida Hogg
Chair
18 February 2025
132
BAE Systems plc  Annual Report 2024
Directors’ report
Financial statements
Auditor’s report
Independent Auditor‘s report 134
Consolidated financial statements
Consolidated income statement 144
Consolidated statement
of comprehensive income 145
Consolidated statement
of changes in equity 146
Consolidated balance sheet 147
Consolidated cash flow statement 148
1. Preparation of the Consolidated
financial statements 149
2. Segmental analysis and
revenue recognition 152
3. Operating costs 157
4. Employees 158
5. Other income 158
6. Net finance costs 159
7. Tax expense 159
8. Earnings per share 162
9. Goodwill 163
10. Other intangible assets 165
11. Property, plant and equipment 167
12. Leases 169
13. Equity accounted investments 170
14. Trade, contract and other receivables 172
15. Other financial assets and liabilities
andfinancial risk management 173
Group accounting policies
Material accounting policies are included within therelevant note to the Consolidated financial statements.
16. Deferred tax 178
17. Inventories 180
18. Current tax 180
19. Cash and cash equivalents 180
20. Geographical analysis of assets 181
21. Loans 181
22. Contract liabilities 182
23. Trade and other payables 182
24. Post-employment benefits 183
25. Provisions 195
26. Share capital and other reserves 196
27. Movement in assets and liabilities
arising from financing activities 199
28. Fair value measurement 200
29. Share-based payments 201
30. Related party transactions 202
31. Contingent liabilities 202
32. Acquisition of businesses 203
33. Business disposals 205
34. Events after the reporting period 205
35. Information about
related undertakings 206
Company financial statements
Company statement
of changes in equity 210
Company balance sheet 211
Notes to the Company
financial statements 212
133BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Independent Auditor’s report
to the members of BAE Systems plc
Report on the audit of
thefinancial statements
1. Opinion
In our opinion:
– the financial statements of BAE Systems
plc (the “Company”) and its subsidiaries
(the “Group”) give a true and fair view
of the state of the Group’s and of the
Company’s affairs as at 31 December
2024 and of the Group’s profit for the
year then ended;
– the Group financial statements have
been properly prepared in accordance
with United Kingdom adopted
international accounting standards;
– the Company financial statements have
been properly prepared in accordance
with United Kingdom Generally
Accepted Accounting Practice, including
Financial Reporting Standard 101
“Reduced Disclosure Framework”; and
– the financial statements have been
prepared in accordance with the
requirements of the Companies
Act2006.
We have audited the financial statements
which comprise:
– the Consolidated income statement;
– the Consolidated statement of
comprehensive income;
– the Consolidated statement of changes
inequity;
– the Consolidated balance sheet;
– the Consolidated cash flow statement;
– the related notes 1 to 35 in the
Consolidated financial statements;
– the Company statement of changes
inequity;
– the Company balance sheet; and
– the related notes 1 to 13 in the
Companyfinancial statements.
The financial reporting framework that
hasbeen applied in the preparation of the
Group financial statements is applicable law
and United Kingdom adopted international
accounting standards. The financial
reporting framework that has been applied
in the preparation of the Company financial
statements is applicable law and United
Kingdom Accounting Standards, including
FRS 101 “Reduced Disclosure Framework”
(United Kingdom Generally Accepted
Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK)
(“ISAs (UK)”) and applicable law. Our
responsibilities under those standards are
further described in the Auditor’s
responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the
Company in accordance with the ethical
requirements that are relevant to our audit
of the financial statements in the UK,
including the Financial Reporting Council’s
(the “FRC’s”) Ethical Standard as applied to
listed public interest entities, and we have
fulfilled our other ethical responsibilities in
accordance with these requirements. The
non-audit services provided to the Group and
Company for the year are disclosed in note 3
to the Consolidated financial statements.
Weconfirm that we have not provided any
non-audit services prohibited by the FRC’s
Ethical Standard to the Group or the
Company.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
134
BAE Systems plc  Annual Report 2024
Auditor’s report
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified
inthe current year were:
– Revenue and margin recognition
onlong-term contracts; and
– Ball Aerospace fair value acquisition
accounting.
Within this report, key audit matters are
identified as follows:
!
Newly identified
Similar level of risk
Materiality
The materiality that we used for the
Groupfinancial statements was £130m
(2023 £100m) which was determined on
thebasis of underlying earnings before
interest and taxes
1
(“underlying EBIT”).
Scoping
We focused our work on 28 (2023 26)
components where we performed an
auditof the entire financial information
oranaudit on one or more classes of
transactions, account balances and
disclosures. These components accounted
for 81% (2023 85%) of revenue,
83%(202385%) of profit before tax
and90% (2023 91%) of total assets.
Significant changes in our approach
Following the acquisition of Ball Aerospace
in February 2024, we have identified the
associated fair value acquisition accounting
as a new key audit matter. We have also
identified the Space & Mission Systems
(“SMS”) business as a newly-acquired
component.
Last year, the valuation of post-employment
benefit obligations was included as a key
audit matter due to the significant audit
effort required and the susceptibility of the
defined benefit obligations to changes
based on the assumptions used. The level
ofaudit effort was impacted by the Group
moving its primary investment manager to
athird-party provider and the level of audit
effort has reduced. On this basis, we have
concluded that the valuation of post-
employment benefit obligations no longer
represents a key audit matter.
1. Underlying EBIT is defined in the Alternative performance measurements section on page 220.
4. Conclusions relating
togoingconcern
In auditing the financial statements, we have
concluded that the directors’ use of the going
concern basis of accounting in the preparation
of the financial statements is appropriate.
Our evaluation of the directors’ assessment
of the Group’s and Company’s ability to
continue to adopt the going concern basis
ofaccounting included:
– obtaining an understanding of the
directors’ process for determining
theappropriateness of the going
concernbasis;
– evaluating the Group’s existing access
tosources of financing, including
existingdebt and undrawn committed
bank facilities;
– obtaining an understanding of relevant
controls over the going concern models
prepared by management, including the
review of the inputs and assumptions used
in those models;
– testing the accuracy of management’s
models, including agreement to the
mostrecent Board approved budgets
andforecasts;
– challenging the key assumptions
underpinning these forecasts by:
– reading analyst reports, industry
dataand other external information
andcomparing these with
management’s estimates;
– comparing forecast revenue with
theGroup’s order book and
historicalperformance;
– evaluating the historical accuracy of
forecasts prepared by management;
– considering potential macro-economic
impacts on the forecasts as a
consequence of the current geo-political
environment; and
– assessing the sensitivity of the
headroom to key assumptions; and
– assessing the appropriateness of the
Group’s disclosure concerning the going
concern basis.
Based on the work performed, we have not
identified any material uncertainties relating
to events or conditions that, individually
orcollectively, may cast significant doubt
onthe Group’s and Company’s ability to
continue as a going concern for a period
ofat least twelve months from when the
financial statements are authorised for issue.
In relation to the reporting on how the
Group has applied the UK Corporate
Governance Code, we have nothing material
to add or draw attention to in relation to
thedirectors’ statement in the financial
statements about whether the directors
considered it appropriate to adopt the
goingconcern basis of accounting.
Our responsibilities and the responsibilities
of the directors with respect to going
concern are described in the relevant
sections of this report.
5. Key audit matters
Key audit matters are those matters that,
inour professional judgement, are of most
significance in our audit of the financial
statements of the current period and include
the most significant assessed risks of material
misstatement (whether or not due to fraud)
that we identified. These matters included
those which had the greatest effect on the
overall audit strategy, the allocation of
resources in the audit, and directing the
efforts of the engagement team.
These matters were addressed in the context
of our audit of the financial statements as a
whole, and in forming our opinion thereon,
and we do not provide a separate opinion
onthese matters.
135
BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Independent Auditor’s report continued
5.1. Revenue and margin recognition
onlong-term contracts
Refer to page 89 (Audit and Risk Committee
Report), Note 1 (Preparation of the Consolidated
financial statements) and Note 2 (Segmental
analysis and revenue recognition)
Revenue:
£26,312m (2023 £23,078m)
Operating profit:
£2,685m (2023 £2,573m)
Key audit matter description
The estimation of both overall lifetime
contract margin and the appropriate level
ofrevenue and profit to recognise in any
single accounting period requires the
exercise of judgement. Within the Group’s
contract portfolio there are a number of
programmes where there is a high degree
ofestimation required in reaching these
judgements. Key estimates include forecast
costs to complete on contracts, the impact
ofassumed learning efficiencies over the life
of a programme, the scheduled completion
dates, and the appropriateness of
contingency held against the risk of future
cost growth. Consequently, we consider
thatrevenue and margin recognition
represent a key audit matter.
We focussed a greater proportion of
auditeffort on a number of contracts
wherewe consider there to be a higher
degree of judgement required and designed
contract-specific procedures to mitigate
theassociated risks.
In order to identify contracts where there
isthe greatest risk of material misstatement,
we undertook a contract risk assessment
process at each component utilising data
analytics, the latest contract information,
ourunderstanding of the business, the
results of prior audits and review of external
information about market and geo-political
conditions which might impact certain
contracts. We held meetings with key
finance and contract managers, attended
quarterly business review meetings and
other key management meetings, read
andunderstood underlying contract
documentation and obtained support for
key contract judgements. In addition, we
looked for contracts that might have higher
levels of judgement associated with the risk
of schedule delivery or technical complexity,
fixed price contracts which increase the risk
of contract losses and other indicators that
could increase the risk of a material impact
on the financial statements.
As a result of our risk assessment,
weidentified one contract where we
consider there to be an elevated risk of
misstatement, owing to the high degree
ofjudgement required in estimating the
trading margin position, impacting the
2024financial statements.
How the scope of our audit
respondedtothe key audit matter
Our contract testing approach included:
Testing the relevant controls
– We obtained an understanding of and
tested relevant financial and IT controls
across the Group’s project accounting
processes established to ensure that
contracts are appropriately forecast,
managed, controlled and reported.
– We observed the controls in operation
byattending a sample of project contract
status review meetings, quarterly business
review meetings and Group-level meetings
to assess the levels of challenge applied
tothe forecasts.
Challenging assumptions and estimates
To gain assurance over the contract
judgements and estimates made, our
workincluded:
– inspection of customer contracts –
inspecting customer contracts to gain an
understanding of key contractual terms;
– enquiry – making enquiries of programme
management and other operational
personnel to obtain an understanding
ofthe performance of the projects
throughout the year and at year-end;
– historical forecasting accuracy –
evaluating historical forecasting accuracy
of costs against actual costs, including
onsimilar programmes, and challenging
future cost expectations with reference
tothose data points;
– site visits – conducting production site
visits to inform our challenge of the cost
tocomplete estimates and understanding
of contract status;
– tests of detail of costs to date and
estimates to complete – testing the
underlying calculations used in the
contract assessments for sensitivity,
accuracy and completeness, including the
estimated costs to complete the contract
alongside associated contingencies and
testing a sample of expenditure to date.
Inauditing the cost to complete, we have
challenged the key assumptions with
reference to previous programmes and
current run-rate data, resource availability,
supply chain issues (such as inflation and
contract delivery schedule) and other
factors that could impact on contract
andschedule risk;
– inspection and evaluation of external
evidence – examining external evidence
toassess contract status, timeframe for
delivery and any variation of consideration
(including associated recoverability of
contract balances), such as customer
correspondence. For certain contracts,
thisevidence was evaluated by meeting
with the customer directly;
– legal – enquiring with in-house legal
counsel regarding contract-related
litigation and claims and analysing legal
opinions where applicable; and
– stand back assessment – considering
whether there were any indicators of
management override of controls or bias
in arriving at their reported position,
including a stand back assessment of
thecontract position.
Key observations
As a result of the audit procedures outlined
above, we consider the judgements made
by the Group in recognising revenue and
profit to be reasonable.
136
BAE Systems plc  Annual Report 2024
Auditor’s report
5.2. Ball Aerospace fair value acquisition
accounting
!
Refer to page 89 (Audit and Risk Committee
report) and Note 32 (Acquisition of businesses)
Key audit matter description
In February 2024, the Group completed
theacquisition of Ball Aerospace (known
asSpace & Mission Systems or “SMS”
post-acquisition) for an aggregate purchase
price of £4,352m. The purchase price was
allocated to the assets acquired and liabilities
assumed based on their respective fair
valuesin accordance with IFRS 3 Business
Combinations. The purchase price allocation
(“PPA”) assessment is complex and involves
both management judgement and the use
of forward-looking estimates. The key
estimates in the PPA are the valuation of
property, plant and equipment, intangible
assets relating to customer relationships and
subsequent residual goodwill. Management
engaged an external expert to assist in the
preparation of the PPA assessment.
Fair values recorded included property, plant
and equipment of £690m and intangible
assets of £2,270m, with £1,873m relating
tocustomer relationships, and goodwill
of£1,507m.
We consider this a key audit matter due
to:(i)the significant judgment developing
the fair value of the customer relationship
intangible asset; and (ii) the audit effort
involved in performing procedures and
evaluating the significant assumptions
related to an acquisition of this scale
andcomplexity.
How the scope of our audit
respondedtothe key audit matter
To respond to this key audit matter, we
completed the following procedures:
– we obtained an understanding of the
transaction via enquiries of management
and evaluation of the signed purchase
agreement;
– we assessed whether the accounting
treatment applied was in accordance
withthe requirements of IFRS 3 Business
Combinations and was consistent
withtheunderlying terms of the
purchaseagreement;
– we obtained an understanding of the
process adopted by management to
derive the fair value acquisition accounting
and the relevant controls in place;
– we critically assessed the capabilities,
competence and objectivity of
management’s expert engaged for
thePPA assessment;
– with involvement of our valuation
specialists, we:
– evaluated the reasonableness of
thevaluation methodologies applied
and the conclusions in the report of
management’s expert;
– assessed projected contract revenues
and win rates used to estimate the fair
value of future customer relationships;
– evaluated the reasonableness of
significant assumptions including
thediscount rate and long-term
revenuegrowth rates used to estimate
the present value of future customer
relationships; and
– evaluated the reasonableness of
significant assumptions used to
estimatethe fair value of property,
plant& equipment; and
– we tested the mechanical accuracy
ofthevaluation models;
– we recalculated the measurement of
goodwill based upon the consideration
transferred, the assets acquired, and
liabilities assumed; and
– we assessed the presentation and
disclosures of the transactions including
the accounting estimates.
Key observations
We consider that the judgements and
estimates made in accounting for the
BallAerospace acquisition are reasonable
and that the disclosures included in Note 32
of the financial statements are appropriate.
137
BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Independent Auditor’s report continued
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Company financial statements
Materiality
£130m (2023 £100m) £86m (2023 £65m)
Basis for determining
materiality
4.3% of underlying EBIT of £3,015m (2023 4.3% of adjusted
profit before tax of £2,352m).
0.4% of total assets of £23,436m, capped at 66%
ofGroup materiality (2023 0.4% of total assets of
£18,369m capped at 65% of Group materiality).
Rationale for the
benchmark applied
We have changed our materiality benchmark from adjusted
profit before tax to underlying EBIT.
While underlying EBIT is similar to the benchmark applied in
theprevious year, we consider underlying EBIT to be of greater
relevance to users of the financial statements as it is a metric
disclosed by management and reconciled to the financial
statements within this annual report.
We consider the measure suitable having also considered
theother relevant benchmarks such as revenue, where our
materiality equates to 0.5%, and net assets, where our
materialityequates to 1.1%.
We consider total assets to be the key benchmark
usedby members of the Company in assessing financial
position as the primary purpose of the entity is to
holdinvestments.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Group financial statements Company financial statements
Performance materiality
70% (2023 70%) of Group materiality 70% (2023 70%) of Company materiality
Basis and rationale
fordetermining
performance materiality
In determining performance materiality, we considered the following factors:
– the size and nature of the uncorrected misstatements identified in the prior year audit;
– our assessment of the potential for uncorrected misstatements in the current year;
– our risk assessment, including our assessment of the overall control environment; and
– the size and nature of the contract-based significant risks of material misstatement identified.
Component performance
materiality
For components other than the Company, where our work on a component included an audit of the entire financial
information or an audit on one or more classes of transactions, account balances and disclosures, this work was completed
to component performance materiality levels between £22.9m and £50.0m (2023 £20.4m and £40.9m).
6.3. Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £6.5m (2023 £5.0m),
as well asdifferences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit and Risk
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
Component
materiality range
£22.9m to £50.0m
Audit and
Risk Committee
reporting threshold
£6.5m
Underlying
EBIT
£3,015m
Group
materiality
£130m
138 BAE Systems plc  Annual Report 2024
Auditor’s report
7. An overview of the scope
ofouraudit
7.1. Identification and scoping
ofcomponents
We performed our scoping of the Group
audit by obtaining an understanding of
theGroup and its environment, including
Group-wide controls. We developed our
Group audit plan by assessing the qualitative
and quantitative risk characteristics of each
significant classes of transactions, account
balances and disclosures. We considered
therelative contribution of each component
to the financial statement line items to
determine which components would be
subject to audit procedures.
Based on this assessment, we focused
ourwork on 27 (2023 26) components
toperform an audit of the entire financial
information or an audit on one or more
classes of transactions, account balances
anddisclosures. These components
accounted for 81% (2023 85%) revenue,
83% (2023 85%) profit before tax and
90%(2023 91%) total assets.
Our calculation of revenue and total asset
coverage only includes components where
audit procedures are performed over the
revenue and asset account balances
respectively. For profit before tax (“PBT”),
ourcoverage calculation includes those
components where we perform audit
procedures over the majority of balances
which constitute PBT.
We engaged component auditors from
theDeloitte member firms in the US, UK,
Kingdom of Saudi Arabia, Sweden and
Australia to perform procedures under our
direction, supervision and review. This
approach allowed us to engage local
auditors who have appropriate knowledge
of local regulations to perform the audit
work, undera common Deloitte audit
approach. The Company is located in the
United Kingdom and audited directly by the
Groupaudit team.
In respect of MBDA, an equity accounted
investment, we engaged with the entity’s
non-Deloitte auditor to perform an audit
ofthe entire financial information under
ourdirection, supervision and review.
We centrally performed audit procedures
onclasses of transactions, account balances
and disclosures including: treasury,
post-employment benefit obligations,
litigation and claims, goodwill, tax, and
headoffice costs.
7.2. Our consideration of the
controlenvironment
In the current year, our controls approach
was principally planned to inform our risk
assessment and also to allow us to evaluate
the operating effectiveness of certain
relevant revenue and pension asset valuation
controls. We also assessed relevant general
IT controls.
We focussed our controls assessment on
theGroup’s contract accounting processes.
For each component where revenue is in
scope, we obtained an understanding of
keycontract controls, such as the estimation
of contract costs and the amount of contract
revenue to recognise in the period, and
evaluated those revenue controls relevant
toour audit. At each of these components,
we also evaluated contract accounting
controls relating to other income statement
and balance sheet account balances where
they were considered relevant to our audit
for risk assessment purposes.
The Group operates a range of IT systems
which form a key part of the financial
reporting process, and these vary by
component and/or by geography. For all
components where we performed an audit
of the entire financial information or an
auditon one or more classes of transactions,
account balances and disclosures, we
identified relevant IT systems for the purpose
of our audit work. These were typically the
principal Enterprise Resource Planning
(“ERP”) systems for each component that
underpin the general ledger, and in some
cases also included ancillary/feeder systems
into the ERPs. The Group continues to invest
in its IT systems and improvements have
been made in response to control findings
previously identified.
We also gained an understanding of
thehead office controls relating to
centralbalances and processes, such
aspost-employment benefit obligations,
consolidation and financial reporting,
treasury, tax, and the Group’s planning
andbudgeting process.
During the course of our audit, we placed
reliance on a number of relevant contract
accounting controls and certain valuation
controls in relation to pension scheme assets.
Where deficiencies have been identified and
the remediation activity remained ongoing
during the year, or the remediated controls
were not effective throughout the whole
accounting period, we did not seek to place
reliance on those relevant controls for the
purpose of our audit.
7.3. Our consideration of climate-
relatedrisks
We have engaged with both the central
finance and sustainability functions to gain
an understanding of the Group’s assessment
of, and the process undertaken to both
identify and quantify, the Group’s climate-
related risks. We have engaged our climate
specialists in our assessment to consider
broader industry and market-wide practice.
We completed an independent climate-
based risk assessment in order to consider
the potential impact of climate change
onthe Group’s financial statements
incorporating both business specific
knowledge and wider industry awareness.
We used this to assess the completeness
ofthe Group’s identified risks. In addition,
component teams have considered the
localregulatory and legal environment,
andtherefore the likelihood of unidentified
environmental claims arising. As set out
bymanagement in pages 150 and 151
tothefinancial statements, the areas of
financial reporting principally impacted
arethose reliant on future forecasts
orfutureperformance, notably
recoverabilityof goodwill.
In relation to the Group’s future forecasts,
we considered the appropriateness of
amounts included by management in
relation to climate change in the context
ofthe underlying businesses’ specific needs
and existing asset base, including engaging
with segment management to understand
the process undertaken to identify
requiredactivities to achieve the Group’s
decarbonisation ambitions. We also
assessedwhether these disclosures reflect
our understanding of theGroup’s approach
to climate. With respect to the financial
statements, we considered whether the
current assessed impact of climate change
required further orenhanced disclosure
aspart of critical accounting estimates.
However, we concluded the current
presentation as afactor within the estimate
of goodwill, rather than a material driver
ofthese estimates, is proportionate to the
relative riskof the Group and currently
assessed potential financial impact.
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Independent Auditor’s report continued
7.4. Working with other auditors
Our oversight of component auditors
included directing the planning of their
auditwork and understanding their risk
assessment process to identify key areas
ofestimates and judgement, as well as
supervising the execution of their audit
work. As part of our direction, we issued
detailed referral instructions to the
component auditors and all teams were
involved in our annual planning workshop,
which was led by the Group audit partner
and team.
Our supervision included regular
communication with all component audit
teams to interact on any related audit and
accounting matters that arose. Either the
lead audit partner or senior members of the
Group engagement team visited component
teams in the UK, US, Australia, Sweden
andKingdom of Saudi Arabia. These visits
were conducted during the planning and
performance stages of our audit, where
wesupervised and reviewed their work.
Inaddition, we performed remote reviews
ofthe underlying audit documentation to
challenge the related component inter-office
reporting and findings from their work.
Weattended component audit closing
meetings in person, or virtually where
inperson attendance was not possible.
The BAE Systems Inc. components in the US
and components owned via BAE Systems Inc.
such as Hägglunds, a Swedish subsidiary,
aresubject to a Department of Defence
Special Security Agreement, which is a
USgovernment requirement setting out
specific protocols that foreign controlled
companies must comply with in order to
beable to undertake government defence
contracts. As part of this, there is restriction
on the flow of information outside of the US.
Therefore, for the US and related components
there are restrictions around access to the
audit files and specific workpapers for
non-US nationals. As such, and consistent
with previous years, we have designed
alternative procedures, including
involvement of an additional independent
US national partner, to ensure appropriate
direction, supervision and review of the
UScomponent audit team.
8. Other information
The other information comprises the
information included in the Annual Report,
other than the financial statements and
ourauditor’s report thereon. The directors
are responsible for the other information
contained within the Annual Report.
Our opinion on the financial statements
does not cover the other information and,
except to the extent otherwise explicitly
stated in our report, we do not express
anyform of assurance conclusion thereon.
Our responsibility is to read the other
information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements,
orour knowledge obtained in the course
ofthe audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies
orapparent material misstatements, we are
required to determine whether this gives rise
to a material misstatement in the financial
statements themselves. If, based on the
workwe have performed, we conclude
thatthere is a material misstatement of this
other information, we are required to report
that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’
responsibilities statement, the directors
areresponsible for the preparation of the
financial statements and for being satisfied
that they give a true and fair view, and
forsuch internal control as the directors
determine is necessary to enable the
preparation of financial statements that
arefree from material misstatement,
whether due to fraud or error.
In preparing the financial statements,
thedirectors are responsible for assessing
the Group’s and the Company’s ability
tocontinue as a going concern, disclosing
asapplicable, matters related to going
concern and using the going concern basis
of accounting unless the directors either
intend to liquidate the Group or the
Company or to cease operations, or
havenorealistic alternative but to do so.
10. Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from material
misstatement, whether due to fraud or
error,and to issue an auditor’s report that
includes our opinion. Reasonable assurance
is a high level of assurance but is not a
guarantee that an audit conducted in
accordance with ISAs (UK) will always
detecta material misstatement when it
exists. Misstatements can arise from fraud
orerror and are considered material if,
individually or in the aggregate, they could
reasonably be expected to influence the
economic decisions of users taken on the
basis of these financial statements.
A further description of our responsibilities
for the audit of the financial statements
islocated on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities.
Thisdescription forms part of our
auditor’sreport.
140
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Auditor’s report
11. Extent to which the audit was
considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances
of non-compliance with laws and regulations.
We design procedures in line with our
responsibilities, outlined above, to detect
material misstatements in respect of
irregularities, including fraud. The extent
towhich our procedures are capable of
detecting irregularities, including fraud
isdetailed below.
11.1. Identifying and assessing potential
risks related to irregularities
In identifying and assessing risks of material
misstatement in respect of irregularities,
including fraud and non-compliance
withlaws and regulations, we considered
the following:
– the nature of the industry and sector,
control environment and business
performance including the design of the
Group’s remuneration policies, key drivers
for directors’ remuneration, bonus levels
and performance targets;
– the Group’s own assessment of the risks
that irregularities may occur either as a
result of fraud or error;
– results of our enquiries of management,
internal legal counsel, internal audit,
directors and the Audit and Risk
Committee about their own identification
and assessment of the risks of irregularities,
including those that are specific to the
Group’s industry;
– the matters discussed among the audit
engagement team including significant
component audit teams and involving
relevant internal specialists, including tax,
valuations, pensions and IT specialists
regarding how and where fraud might
occur in the financial statements and any
potential indicators of fraud; and
– any matters we identified having
obtained and reviewed the Group’s
documentation of their policies and
procedures relating to:
– identifying, evaluating and complying
with laws and regulations and whether
they were aware of any instances of
non-compliance;
– detecting and responding to the risks
offraud and whether they have
knowledge of any actual, suspected
oralleged fraud; and
– the internal controls established to
mitigate risks of fraud or non-compliance
with laws and regulations, including
obtaining an understanding of the
Group’s bribery and corruption and
whistleblowing policies.
As a result of these procedures, we
considered the opportunities and incentives
that may exist within the organisation for
fraud and identified the greatest potential
for fraud in the level of judgement involved
in estimating costs to complete and the
subsequent impact on revenue and
marginrecognition on long-term contracts.
In common with all audits under ISAs (UK),
we are also required to perform specific
procedures to respond to the risk of
management override.
We also obtained an understanding of the
legal and regulatory frameworks that the
Group operates in, focusing on provisions of
those laws and regulations that had a direct
effect on the determination of material
amounts and disclosures in the financial
statements. The key laws and regulations
weconsidered in this context included the
UK Companies Act, Listing Rules, pension
legislation and taxation legislation.
In addition, we considered provisions
ofother laws and regulations that do
nothave a direct effect on the financial
statements but compliance with which
maybe fundamental to the Group’s ability
tooperate or to avoid a material penalty,
including in respect of export controls,
defence contracting and anti-bribery
andcorruption legislation.
11.2. Audit response to risks identified
As a result of performing the above, we
identified revenue and margin recognition
on long-term contracts as a key audit matter,
with the greatest potential for fraud owing
to the level of estimation uncertainty and
management judgement. The key audit
matters section of our report explains the
matter in more detail and also describes
thespecific procedures we performed in
response to that key audit matter.
In addition to the above, our procedures
torespond to risks identified included
thefollowing:
– reviewing the financial statement
disclosures and testing to supporting
documentation to assess compliance with
provisions of relevant laws and regulations
described as having a direct effect on the
financial statements;
– enquiring of management, the Audit and
Risk Committee and in-house legal counsel
concerning actual and potential litigation
and claims;
– performing analytical procedures to
identify any unusual or unexpected
relationships that may indicate risks of
material misstatement due to fraud;
– reading minutes of meetings of those
charged with governance, reviewing
internal audit reports, and reviewing
correspondence with relevant regulatory
authorities; and
– in addressing the risk of fraud through
management override of controls, testing
the appropriateness of journal entries and
other adjustments; assessing whether the
judgements made in making accounting
estimates are indicative of a potential bias;
and evaluating the business rationale
ofany significant transactions that are
unusual or outside the normal course
ofbusiness.
We also communicated relevant identified
laws and regulations and potential fraud risks
to all engagement team members including
internal specialists and significant component
audit teams and remained alert to any
indications of fraud or non-compliance with
laws and regulations throughout the audit.
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Independent Auditor’s report continued
Report on other legal and
regulatory requirements
12. Opinions on other matters
prescribed by the Companies
Act2006
In our opinion the part of the directors’
remuneration report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work
undertaken in the course of the audit:
– the information given in the strategic
report and the directors’ report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements; and
– the strategic report and the
directors’report have been prepared
inaccordance with applicable
legalrequirements.
In the light of the knowledge and
understanding of the Group and the
Company and their environment
obtained in the course of the audit,
wehave not identified any material
misstatements in the strategic report
orthe directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the
directors’ statement in relation to going
concern, longer-term viability and that part
of the Corporate Governance Statement
relating to the Group’s compliance with the
provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part
ofour audit, we have concluded that
eachof the following elements of the
Corporate Governance Statement is
materially consistent with the financial
statements and our knowledge obtained
during the audit:
– the directors’ statement with regards
to the appropriateness of adopting
the going concern basis of accounting
and any material uncertainties
identified set out on page 67;
– the directors’ explanation as to its
assessment of the Group’s prospects,
the period this assessment covers and
why the period is appropriate set out
on page 66;
– the directors’ statement on fair,
balanced and understandable set
outon page 132;
– the board’s confirmation that it
hascarried out a robust assessment
ofthe emerging and principal risks
setout on page 56;
– the section of the annual report
thatdescribes the review of
effectiveness of risk management
andinternal control systems set
outon page 82; and
– the section describing the work of
theAudit and Risk Committee set
outon page 86.
142
BAE Systems plc  Annual Report 2024
Auditor’s report
14. Matters on which we are required
to report by exception
14.1. Adequacy of explanations received
and accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
– we have not received all the information
and explanations we require for our
audit; or
– adequate accounting records have not
been kept by the Company, or returns
adequate for our audit have not been
received from branches not visited
byus;or
– the Company financial statements are
not in agreement with the accounting
records and returns.
We have nothing to report in respect
ofthese matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also
required to report if, in our opinion, certain
disclosures of directors’ remuneration have
not been made or the part of the directors’
remuneration report to be audited is not
inagreement with the accounting records
andreturns.
We have nothing to report in respect
ofthese matters.
15. Other matters which we are
required to address
15.1. Auditor tenure
Following the recommendation of the
Auditand Risk Committee, we were
appointed by the members on 10 May 2018
to audit the financial statements for the year
ending 31 December 2018 and subsequent
financial periods. The period of total
uninterrupted engagement including
previous renewals and reappointments
ofthe firm is seven years covering the
yearsended 31 December 2018 to
31 December 2024.
15.2. Consistency of the audit
reportwiththe additional report
totheAudit and Risk Committee
Our audit opinion is consistent with the
additional report to the Audit and Risk
Committee we are required to provide
inaccordance with ISAs (UK).
16. Use of our report
This report is made solely to the Company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the Company’s
members those matters we are required
tostate to them in an auditor’s report and
for no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the Company and the Company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.
As required by the Financial Conduct
Authority (FCA) Disclosure Guidance and
Transparency Rule (DTR) 4.1.15R – DTR
4.1.18R, these financial statements will
formpart of the Electronic Format Annual
Financial Report filed on the National Storage
Mechanism of the FCA in accordance with
DTR 4.1.15R – DTR 4.1.18R. This auditor’s
report provides no assurance over whether
the Electronic Format Annual Financial
Report has been prepared in compliance
with DTR 4.1.15R – DTR 4.1.18R. We have
been engaged to provide assurance on
whether the Electronic Format Annual
Financial Report has been prepared in
compliance with DTR 4.1.15R – DTR 4.1.18R
and will publicly report separately to the
members on this.
Claire Faulkner
Senior Statutory Auditor
For and on behalf of
Deloitte LLP Statutory Auditor
London, United Kingdom
18 February 2025
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2024
2023
TotalTotal
Note
£m
£m
£m
£m
Continuing operations
Revenue
2
26 , 312
23, 078
Operating costs
3
(2 4 ,1 0 6)
(2 0 , 9 17)
Other income
5
266
20 4
Share of results of equity accounted investments
13
213
208
Operating profit
2
2 ,685
2, 573
Finance income
13 5
17 2
Finance costs
(4 8 8)
(419)
Net finance costs
6
(35 3)
(247)
Profit before tax
2 ,332
2, 326
Tax expense
7
(2 9 1)
(3 86)
Profit for the year
2 , 0 41
1, 9 4 0
Attributable to:
Equity shareholders
1, 9 5 6
1, 8 5 7
Non-controlling interests
85
83
2 , 0 41
1, 9 4 0
Earnings per share
8
Basic earnings per share
64. 9p
61. 3p
Diluted earnings per share
6 4 .1p
60.4p
Consolidated income statement
for the year ended 31 December
144 BAE Systems plc  Annual Report 2024
Consolidated financial statements
2024
2023
Other RetainedOther Retained
reserves
1
earningsTotal
reserves
1
earningsTotal
Note£m£m£m£m£m£m
Profit for the year
–
2 , 0 41
2 , 0 41
–
1, 9 4 0
1, 9 4 0
Other comprehensive income
Items that will not be reclassified to the income statement:
Consolidated:
Remeasurements on post-employment benefit schemes
24
–
414
414
–
(65 8)
(658)
Remeasurements on otherinvestments
–
–
–
–
(11)
(11)
Tax on items that will not be reclassified to the income statement
7
–
(25)
(2 5)
–
4
4
Share of the other comprehensive income/(expense) of associates
and joint ventures accounted for using the equity method
(netoftax)
13
–
15
15
–
(25)
(25)
Items that may be reclassified to the income statement:
Consolidated:
Currency translation on foreign currency net investments
4
–
4
(51 0)
–
(51 0)
Reclassification of cumulative currency translation reserve
ondivestment of interest in equity accounted investments
andother business disposals
3
–
3
–
–
–
Fair value loss arising on hedging instruments during theyear
15
(3 6)
–
(3 6)
(4)
–
(4)
Cumulative fair value loss/(gain) on hedging instruments
reclassified tothe income statement
69
–
69
(19)
–
(19)
Tax on items that may be reclassified to the income statement
7
(7)
–
(7)
3
–
3
Share of the other comprehensive income of associates and joint
ventures accounted for using the equity method (netoftax)
13
4
–
4
11
–
11
Total other comprehensive income/(expense) for the year
(netoftax)
37
404
4 41
(519)
(69 0)
(1, 2 0 9)
Total comprehensive income/(expense) for the year
37
2 ,4 45
2, 482
(51 9)
1, 25 0
7 31
Attributable to:
Equity shareholders
38
2, 357
2, 395
(5 11)
1,17 5
66 4
Non-controlling interests
(1)
88
87
(8)
75
67
37
2 ,4 45
2, 482
(51 9)
1, 25 0
7 31
1. An analysis of other reserves is provided in note 26.
Consolidated statement of comprehensive income
for the year ended 31 December
145BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Attributable to equity holders of BAE Systems plc
IssuedNon-
shareShareOther Retained controllingTotal
capitalpremium
reserves
1
earningsTotalinterestsequity
Note£m£m£m£m£m£m£m
At 1 January 2023
82
1, 2 5 2
6 , 9 51
2, 93 0
11 , 2 1 5
18 5
11, 4 0 0
Profit for the year
–
–
–
1, 8 5 7
1, 8 5 7
83
1, 9 4 0
Total other comprehensive expense for the year
–
–
(511)
(6 82)
(1 ,19 3)
(16)
(1, 2 0 9)
Total comprehensive (expense)/income for the year
–
–
(5 11)
1,1 7 5
664
67
7 31
Share-based payments (inclusive of tax)
29
–
–
–
13 2
13 2
–
13 2
Cumulative fair value gain on hedging instruments
transferred to the balance sheet (net of tax)
–
–
(38)
–
(3 8)
–
(3 8)
Ordinary share dividends
26
–
–
–
(857)
(857)
(8 8)
(9 45)
Purchase of own shares
26
(1)
–
1
(55 8)
(55 8)
–
(55 8)
Proceeds from unclaimed asset programme
–
1
–
–
1
–
1
At 31 December 2023
81
1, 2 5 3
6 , 4 03
2, 822
10, 559
16 4
10,723
Profit for the year
–
–
–
1, 9 5 6
1, 9 56
85
2 , 0 41
Total other comprehensive income for the year
–
–
38
4 01
439
2
4 41
Total comprehensive income for the year
–
–
38
2 ,3 57
2 , 395
87
2, 482
Share-based payments (inclusive of tax)
29
–
–
–
14 5
14 5
–
14 5
Cumulative fair value loss on hedging instruments
transferred to the balance sheet (net of tax)
–
–
5
–
5
–
5
Ordinary share dividends
26
–
–
–
(937)
(937)
(9 0)
(1, 0 2 7)
Purchase of own shares
26
(1)
–
1
(5 5 1)
(5 5 1)
–
(5 5 1)
At 31 December 2024
80
1, 2 53
6 , 4 47
3, 836
11 , 6 1 6
161
1 1 ,777
1. An analysis of other reserves is provided in note 26.
Consolidated statement of changes in equity
for the year ended 31 December
146 BAE Systems plc  Annual Report 2024
Consolidated financial statements
2024 2023
Note£m£m
Non-current assets
Goodwill
9
13,297
11 , 3 8 6
Other intangible assets
10
2, 965
713
Property, plant and equipment
11
4,843
3 ,6 35
Right-of-use assets
12
1, 755
1 , 3 11
Investment property
38
57
Equity accounted investments
13
823
8 32
Other investments
83
84
Contract and other receivables
14
73 4
633
Post-employment benefit surpluses
24
1, 2 71
804
Other financial assets
15
265
2 27
Deferred tax assets
16
315
609
20
26, 389
2 0, 291
Current assets
Inventories
17
1, 32 4
1 ,15 6
Trade, contract and other receivables
14
6,663
6 ,18 5
Current tax
18
17 6
16 0
Other financial assets
15
2 12
205
Cash and cash equivalents
19
3, 378
4, 067
1 1,753
11, 7 7 3
Total assets
3 8 ,1 4 2
32 ,0 6 4
Non-current liabilities
Loans
21
(7, 7 1 3)
(4 , 432)
Lease liabilities
12
(1 , 6 5 8)
(1, 2 7 3)
Contract liabilities
22
(1, 7 2 0)
(1, 9 55)
Other payables
23
(1, 8 5 9)
(1, 5 9 4)
Post-employment benefit obligations
24
(5 0 3)
(575)
Other financial liabilities
15
(19 3)
(227)
Deferred tax liabilities
16
(14)
(10)
Provisions
25
(36 3)
(3 32)
(14 , 0 2 3)
(10 , 3 9 8)
Current liabilities
Loans
21
(6 9 9)
(67 9)
Lease liabilities
12
(18 3)
(147)
Contract liabilities
22
(4 , 5 0 4)
(3, 8 65)
Trade and other payables
23
(6 , 3 8 3)
(5, 436)
Other financial liabilities
15
(2 6 4)
(2 95)
Current tax
18
(55)
(28 5)
Provisions
25
(2 54)
(23 6)
(12,342)
(1 0 , 9 4 3)
Total liabilities
(26 , 3 65)
(2 1, 3 4 1)
Net assets
1 1, 777
10,723
Capital and reserves
Issued share capital
26
80
81
Share premium
1, 2 53
1, 2 5 3
Other reserves
26
6, 4 47
6, 4 03
Retained earnings
3,8 36
2, 822
Total equity attributable to equity holders of BAE Systems plc
11, 6 1 6
10 , 55 9
Non-controlling interests
161
16 4
Total equity
1 1, 777
10,723
Approved by the Board of directors of BAE Systems plc on 18 February 2025 and signed on its behalf by:
C N Woodburn B M Greve
Chief Executive Chief Financial Officer
Consolidated balance sheet
as at 31 December
147BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
2024 2023
Note£m£m
Profit for the year
2 , 0 41
1, 9 4 0
Tax expense
7
2 91
386
Adjustment in respect of research and development expenditure credits
5
(4 5)
(53)
Share of results of equity accounted investments
13
(2 13)
(2 08)
Net finance costs
6
353
247
Depreciation, amortisation and impairment
3
1, 0 9 7
787
Net loss/(gain) on disposal of property, plant and equipment, and investment property
3,5
6
(10)
Gain in respect of divestment of interests in equity accounted investments and other business disposals
5,33
(9 4)
–
Cost of equity-settled employee share schemes
4
14 4
11 0
Movement in provisions
24
–
Difference between pension funding contributions paid and the pension charge
(2 49)
(169)
(Increase)/decrease in working capital:
Inventories
(14 4)
(2 2 3)
Trade, contract and other receivables
(1 21)
(287)
Trade and other payables, and contract liabilities
1, 010
1, 6 35
Tax paid net of research and development expenditure credits received
(17 5)
(3 95)
Net cash flow from operating activities
3, 925
3, 76 0
Dividends received from equity accounted investments
13
15 8
13 4
Interest received
13 0
12 6
Principal element of finance lease receipts
12
10
Purchase of property, plant and equipment, and investment property
(99 0)
(826)
Purchase of intangible assets
(17 3)
(13 1)
Proceeds from funding related to assets
15 3
14 9
Proceeds from sale of property, plant and equipment, investment property and intangible assets
23
19
Purchase of subsidiary undertakings, net of cash and cash equivalents acquired
32
(4 ,7 76)
(14)
Cash flow in respect of divestment of interests in equity accounted investments and other business disposals
33
19 4
(8)
Net cash flow from investing activities
(5, 26 9)
(5 4 1)
Interest paid
(543)
(356)
Equity dividends paid
26
(937)
(857)
Purchase of own shares
26
(555)
(5 6 1)
Dividends paid to non-controlling interests
(8 9)
(8 8)
Principal element of lease payments
(19 0)
(2 92)
Cash inflow from derivative financial instruments (excluding cash flow hedges)
13 6
193
Cash outflow from derivative financial instruments (excluding cash flow hedges)
(26 6)
(3 89)
Cash inflow from bond finance/private placement
3,753
16 2
Cash outflow from repayment of bond finance
(62 6)
–
Cash inflow from draw-down of bridge loan facility
3 ,1 8 0
–
Cash outflow from repayment of bridge loan facility
(3 ,1 6 8)
–
Net cash flow from financing activities
27
695
(2 ,1 8 8)
Net (decrease)/increase in cash and cash equivalents
(6 49)
1, 0 31
Cash and cash equivalents at 1 January
4, 0 67
3 ,1 0 7
Effect of foreign exchange rate changes on cash and cash equivalents
(4 0)
(7 1)
Cash and cash equivalents at 31 December
19
3, 378
4, 067
Consolidated cash flow statement
for the year ended 31 December
148 BAE Systems plc  Annual Report 2024
Consolidated financial statements
1. Preparation of the Consolidated financial statements
Basis of preparation
BAE Systems plc (the ultimate parent company) is a public company limited by shares incorporated in the United Kingdom under the
Companies Act and is registered in England and Wales. The address of the parent company’s registered office is shown on page 236.
Following review, the directors have concluded that it is appropriate to adopt the going concern basis for these financial statements and
have not identified any material uncertainties concerning the Group’s ability to do so in the 12-month period from the date of approving
them. Accordingly, the Consolidated financial statements of BAE Systems plc have been prepared on a going concern basis, and in
accordance with UK-adopted international accounting standards and the Companies Act 2006.
The Consolidated financial statements are presented in pounds sterling and, unless stated otherwise, rounded to the nearest million.
They have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and financial
liabilities (including derivative financial instruments).
Transactions in foreign currencies are translated at the exchange rates ruling at the date of the transactions. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the exchange rates ruling at the balance sheet date, with the resulting exchange
differences recognised in the Consolidated income statement.
Material accounting policies
The material accounting policies applied in the preparation of these Consolidated financial statements are set out in the relevant notes.
These policies have been applied consistently to all the years presented, unless otherwise stated. The directors believe that the Consolidated
financial statements reflect appropriate judgements and estimates, and provide a true and fair view of the Group’s financial performance
and position.
Key sources of estimation uncertainty
The application of the Group’s accounting policies requires the use of estimates. In response to the potential impact of risks and uncertainties,
the Group undertakes risk assessments and scenario planning in order to be able to respond to potential rapid changes in circumstances.
The Group considers a range of estimates and assumptions in the application of its accounting policies and management’s assessment of the
carrying value of assets and liabilities. In the event that these estimates or assumptions prove to be inaccurate, there may be an adjustment to
the carrying values of assets and liabilities within the next year. Areas of the Group’s financial statements which could be materially impacted
may include, but are not limited to:
Accounting policy
Description
Note
Revenue and profit The Group accounts for revenue in accordance with IFRS 15 Revenue from Contracts with Customers. 2
recognition For most of the Group’s contracts, revenue and associated margin are recognised progressively over
time as costs are incurred, and as risks have been mitigated or retired.
The ultimate profitability of contracts is based on estimates of revenue and costs, including allowances
for technical and other risks which are reliant on the knowledge and experience of the Group’s project
managers, engineers, and finance and commercial professionals. Material changes in these estimates
could affect the profitability of individual contracts. Revenue and cost estimates are reviewed and
updated at least quarterly, or more frequently as determined by events or circumstances.
The long-term nature of many of the Group’s contracts means that judgements are made in estimating
future costs on a contract, as well as when risks will be mitigated or retired. The impact of global supply
chain issues, volatility in global energy prices, and the ongoing response to climate change, have
increased uncertainty in relation to these judgements and estimates. The Group continues to work
closely and collaboratively with its key customers to deliver effectively on its contracts and commitments.
However, the volume, scale, complexity and long-term nature of its programmes mean that potential
sensitivities would be wide-ranging and not practicable to calculate. Owing to the potential future
impact of current uncertainties, the Group’s estimates and assumptions related to revenue recognition
could be impacted by issues such as reduced productivity as a result of operational disruption,
production delays and increased costs as a result of disruption to the supply chain, changing working
practices to move towards our decarbonisation ambitions or, where there is uncertainty as to the
recovery from customers, of programme costs incurred.
As described in the Group’s accounting policy on page 152, revenue and profit is recognised only to
the extent that it is highly probable that there will not be a reversal of revenue in the future. Therefore,
in any given reporting year, the Group would expect to recognise an amount of revenue that did not
meet the highly probable threshold at the end of the previous reporting year, but subsequently
became highly probable in the current reporting year. Accordingly, the Group has recognised £0.2bn
(2023 £0.3bn) of revenue in respect of performance obligations satisfied or partially satisfied in previous
years. This continues to provide an approximation of the potential revenue sensitivity arising as a result
of management’s estimates and assumptions for variable consideration, future costs, and technical
and other risks; however, it may not reflect the full potential impact on the contract receivables
and contract liabilities balances.
Notes to the Consolidated
financial statements
149BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
1. Preparation of the Consolidated financial statements continued
Accounting policy
Description
Note
Post-employment A number of actuarial assumptions are made in assessing the value of post-employment benefit 24
benefit obligations obligations, including the discount rate, inflation rate and mortality assumptions. For each of the actuarial
assumptions used, there is a wide range of possible values and management estimates a point within
that range that most appropriately reflects the Group’s circumstances.
If estimates relating to these actuarial assumptions are no longer valid, or change due to changing economic
and social conditions, then the potential obligations due under these schemes could change significantly.
Discount and inflation rates could change significantly as a result of a prolonged economic downturn,
monetary policy decisions and interventions or other macroeconomic issues. The impact of estimates
made with regard to mortality projections may also change.
Similarly, the values of many assets are subject to estimates and assumptions, in particular those which
are held in unquoted pooled investment vehicles. The associated fair value of these unquoted pooled
investments is estimated with consideration of the most recently available valuations provided by the
investment or fund managers. These valuations inherently incorporate a number of assumptions, including
the impact of climate change, on the underlying investments. The overall level of estimation uncertainty in
valuing these assets could therefore give rise to a material change in valuation within the next 12 months.
Furthermore, estimates are required around the Group’s ability to access its defined benefit surpluses,
and on what basis, which then determines the associated rate of tax to apply. Depending on the outcome,
judgement is then required to determine the presentation of any tax payable in recovering a surplus.
Note 24 provides information on the key assumptions and analysis of their sensitivities.
Critical judgements made in applying accounting policies
In the course of preparing the Consolidated financial statements and when applying its accounting policies, the Group has been required to
make judgements with regard to the actions required to enable the business to continue to meet customers’ requirements in an operating
environment still dominated by global economic uncertainties. No critical judgements have been made in the process of applying the Group’s
accounting policies, other than those involving estimates, that have had a significant effect on the amounts recognised in the Consolidated
financial statements.
Impact of climate on the Consolidated financial statements
In preparing the Consolidated financial statements management has considered the potential impact of climate change, both in the context
of the disclosures included in the Strategic report, and the impact of climate-related risks and opportunities and the Group’s decarbonisation
ambitions and activities on the Group’s financial results.
As a responsible defence business, sustainability is embedded in our strategic framework, with one of the Group’s long-term objectives to
advance and integrate our ESG agenda. The products and services we provide are complex, diverse and developed over extended periods
of time. Sustainability and the impact of our operations is considered in the planning and ongoing production of our products and services,
including incorporation of the impact of the Group’s decarbonisation ambitions and activities. These are embedded in our financial reporting,
forecasting and governance processes.
Estimates and judgement are required in determining how the Group will pursue its decarbonisation ambitions. These, as well as mitigating
actions required from the detailed review of climate risks and opportunities identified within the TCFD disclosures on page 226, have been
factored into the current and future plans of the Group through the Integrated Business Plan (IBP). The IBP is the Group’s annual long-term
strategy review and five-year plan for each segment, including the investment case to decarbonise.
There are a number of core practices and processes that support the business to remain resilient and adapt to the impacts of climate change,
whilst controlling the financial impacts to the Group. These include:
– Maintenance and investment in our infrastructure – our products are designed and built to remain in service for decades to come, and
require development and construction over a significant period of time. In order to deliver complex engineering and technologically
advanced products, we continuously invest in the maintenance and upkeep of our global sites and facilities. The Group regularly invests
in its facilities to ensure they are maintained and adapted to enable our operations. Regular maintenance and investing in Group
infrastructure is embedded in our strategy, and the expected associated costs are reflected in our IBP. Insurance also provides underlying
cover for more immediate and unexpected impacts of climate change.
– Investment in renewable energy – during the year, the Group has continued to contract for Power Purchase Agreements (PPAs) to invest
in renewable energy, providing long-term security of energy and pricing.
– Proactive estate management – a large part of our business is based on sites that are leased to the Group, as reflected in our right-of-
use assets in the Consolidated financial statements. Although some facilities, such as shipyards, are required to be in certain locations, many
of our operations are not tied to a particular location. Given the long-term outlook of our business, future physical impacts of climate change
could be mitigated through movement of activities on these sites to facilities that will be less impacted by climate change. As and when sites
are identified that would benefit from relocation, the associated costs are reflected within the IBP. We have not currently identified any sites
which require relocation due to climate change. We also use opportunities to build new infrastructure and refurbish existing buildings to
upgrade energy efficiency.
The more immediate financial impacts of climate-related risks, and the actions being taken to address them, are reflected in the financial results of
the Group for the year. These are not considered to have had a material impact. Areas impacted by climate-related risks and opportunities include:
– Goodwill and other intangible assets – the annual impairment review uses cash flow projections from the IBP, which incorporates any
financial impact of climate-related risks and opportunities identified. This includes product repair and adaptation, as well as investment
in facilities to progress the Group’s decarbonisation ambitions. All Cash-Generating Units showed sufficient headroom after incorporation
of climate-related costs and opportunities.
150
BAE Systems plc  Annual Report 2024
Consolidated financial statements
1. Preparation of the Consolidated financial statements continued
– Property, plant and equipment – the useful economic life of existing capitalised assets across the Group has been reviewed in light
of any repairs, upgrades to existing infrastructure, or future investment in facilities that will be required as a result of the climate-related
risks and opportunities identified across our sites. No significant impairment of assets has been identified from this review.
– Right-of-use assets, lease liabilities, and financial assets and liabilities – the Group has continued to contract for PPAs during the
year to provide more sustainable energy from renewable sources. Once the projects are completed, and where the accounting for these
agreements falls within the scope of IFRS 16 Leases, the relevant right-of-use assets and corresponding liabilities will be recognised in the
Consolidated financial statements. The associated costs of the arrangement will be recognised in line with the term of the agreement.
The Group has also considered whether any embedded derivatives have arisen, within the scope of IFRS 9 Financial Instruments, as a result
of the PPAs entered into during the year. None are considered to exist at the balance sheet date; however, this will continue to be monitored
as the associated contractual arrangements are refined and the construction of the facilities approaches completion.
– Pension plans – in assessing the value of pension assets for the UK schemes, the Group has considered the impact of climate change which
is incorporated into the cash flow projections used in valuing infrastructure investment assets and pooled investment vehicle cash flows upon
which the Group bases its assessment. There is also alignment between the UK Main Scheme and the Group’s climate change objectives with
consistent long-term decarbonisation ambitions. This has not materially impacted the Group’s net pension position during the year.
– Deferred tax assets – the recoverability of deferred tax assets is dependent on the future availability of profits, which in turn could be
impacted by climate-related matters. The recoverability of deferred tax assets has been reviewed against the Group’s future forecasts
resulting from the IBP process, which incorporate identified climate-related risks and opportunities. No material risk to the recoverability
of deferred tax assets has been identified.
– Share-based payments – the award of Performance Shares within the Director’s Long-Term Incentive framework has a 10%
weighting based on the reduction of Group GHG emissions (Scope 1 and 2) aligned to a science-based pathway. The ability to meet
this target will impact the amount and timing of any share-based payments over the term of the policy. This condition has not materially
impacted the financial results of the Group for the current year.
Changes in accounting policies
The following standards, interpretations and amendments to existing standards became effective on 1 January 2024 and have not had
a material impact on the Group:
– Amendments to IAS 1: Classification of Liabilities as Current or Non-current;
– Amendments to IAS 1: Non-current Liabilities with Covenants;
– Amendments to IAS 7 and IFRS 7: Supplier Finance Arrangements; and
– Amendments to IFRS 16: Lease Liability in a Sale and Leaseback.
The following other standards, interpretations and amendments to existing standards have been issued but were not mandatory for
accounting periods beginning on 1 January 2024. These either have been, or are expected to be, endorsed by the UK Endorsement Board
and are not expected to have a material impact on the Group:
– Amendments to IAS 21: Lack of Exchangeability, effective from 1 January 2025;
– Amendments to IFRS 9 and IFRS 7: Amendments to the Classification and Measurement of Financial Instruments, effective from
1 January 2026;
– Amendments to IFRS 9 and IFRS 7: Contracts Referencing Nature-dependent Electricity, effective from 1 January 2026;
– Annual Improvements to IFRS Accounting Standards – Volume 11, effective from 1 January 2026;
– IFRS 19 Subsidiaries without Public Accountability: Disclosures, effective from 1 January 2027; and
– Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or joint venture.
The following new standard is expected to change the presentation of the Consolidated financial statements:
– IFRS 18 Presentation and Disclosure in Financial Statements, effective from 1 January 2027.
Consolidation
The financial statements of the Group consolidate the results of the Company and its subsidiary entities, and include its share of results
of investments accounted for under the equity method.
A subsidiary is an entity controlled by the Group. The Group controls a subsidiary when it is exposed, or has the rights, to variable returns
from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. The results of
subsidiaries are included in the Consolidated income statement from the date of acquisition, or up until the date of disposal.
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated
in preparing the Consolidated financial statements.
Joint ventures and investments in associated undertakings are accounted for under the equity method and the Consolidated income
statement includes the Group’s share of their profits and losses, the Consolidated statement of comprehensive income includes its share
of their other comprehensive income and expense, and the Consolidated balance sheet includes its share of their net assets within equity
accounted investments.
The assets and liabilities of overseas subsidiaries and equity accounted investments are translated at the exchange rates ruling at the balance
sheet date. The Consolidated income statements of such entities are translated at average rates of exchange during the year. All resulting
exchange differences are recognised directly in a separate component of equity. Translation differences that arose before the transition date
to IFRS (1 January 2004) are presented in equity, but not as a separate component. When a foreign operation is sold, the cumulative exchange
differences recognised in equity since 1 January 2004 are recognised in the Consolidated income statement as part of the profit or loss on sale.
151
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Notes to the Consolidated financial statements continued
2. Segmental analysis and revenue recognition
Revenue and profit recognition
Revenue represents income derived from contracts for the provision of goods and services, over time or at a point in time, by the Group
to customers in exchange for consideration in the ordinary course of the Group’s activities.
The Group accounts for revenue in accordance with IFRS 15 Revenue from Contracts with Customers. For most of the Group’s contracts,
revenue and associated margin are recognised progressively over time as costs are incurred, and as risks have been mitigated or retired.
The ultimate profitability of contracts is based on estimates of revenue and costs, including allowances for technical and other risks which
are reliant on the knowledge and experience of the Group’s project managers, engineers, and finance and commercial professionals.
Revenue and cost estimates are reviewed and updated at least quarterly, or more frequently as determined by events and circumstances.
The Group typically enters into the following types of contracts with customers:
– to design, build or create assets uniquely available to the customer such as ships, aircraft and spacecraft;
– to service or maintain assets over a period of time;
– to give access to software and licences; and
– to offer bespoke services to customers, for example through training or the offering of cyber, intelligence and security capabilities.
Revenue is recognised against each of these types of contracts in line with the following accounting policies.
Performance obligations
Upon approval by the parties to a contract, the contract is assessed to identify each promise to transfer either a distinct good or service
or a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Goods and
services are distinct and accounted for as separate performance obligations in the contract if the customer can benefit from them either
on their own or together with other resources that are readily available to the customer and they are separately identifiable in the contract.
In some cases, the Group provides warranties to its customers to give them assurance that its products and services will function in line
with agreed-upon specifications. Warranties are not provided separately and, therefore, do not represent separate performance
obligations. As they are not provided separately, they are not considered to be insurance contracts in scope of IFRS 17 Insurance
Contracts. A provision for warranties is recognised when the underlying products and services are sold (see note 25 for further details).
Transaction price
At the start of the contract, the total transaction price is estimated as the amount of consideration to which the Group expects to be
entitled in exchange for transferring the promised goods and services to the customer, excluding sales taxes. Variable consideration, such
as variable price mechanisms, is included based on the expected value or most likely amount only to the extent that it is highly probable
that there will not be a reversal in the amount of cumulative revenue recognised. The transaction price does not include estimates of
consideration resulting from contract modifications, such as change orders, until they have been approved by the parties to the contract.
The total transaction price is allocated to the performance obligations identified in the contract in proportion to their relative stand-alone
selling prices. Given the bespoke nature of many of the Group’s products and services, which are designed and/or manufactured under
contract to the customer’s individual specifications, there are typically no observable stand-alone selling prices. Instead, stand-alone selling
prices are typically estimated based on expected costs plus contract margin consistent with the Group’s pricing principles.
Whilst payment terms vary from contract to contract, on many of the Group’s contracts, an element of the transaction price is received
in advance of delivery. When cash is received in advance of goods or services being delivered a contract liability is recognised. The Group
therefore has significant contract liabilities (note 22). The Group’s contracts are not considered to include significant financing components
on the basis that there is no difference between the consideration and the cash selling price. UK Ministry of Defence contracting rules
prohibit the inclusion of financing in the sales price. Negotiations on competitive international export contracts do not make allowance
for the cash payment profile.
Revenue and profit recognition
Revenue is recognised as performance obligations are satisfied and control of the goods and services is transferred to the customer.
For each performance obligation within a contract, the Group determines whether it is satisfied over time or at a point in time.
Performance obligations are satisfied over time if one of the following criteria is satisfied:
– the customer simultaneously receives and consumes the benefits provided by the Group’s performance as it performs;
– the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or
– the Group’s performance does not create an asset with an alternative use to the Group and it has an enforceable right to payment
for performance completed to date.
The Group has determined that most of its contracts satisfy the over-time criteria, either because the customer simultaneously receives
and consumes the benefits provided by the Group’s performance as it is performed (typically services or support contracts, for example
in the case of ongoing maintenance and support of aircraft and flying capability), or the Group’s performance does not create an asset
with an alternative use to the Group and it has an enforceable right to payment for performance completed to date (typically development
or production contracts, such as in the production of ships or aircraft to customers’ unique specifications).
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BAE Systems plc  Annual Report 2024
Consolidated financial statements
2. Segmental analysis and revenue recognition continued
For each performance obligation to be recognised over time the Group recognises revenue using an input method, based on costs incurred
in the year. Revenue and attributable margin are calculated by reference to reliable estimates of the transaction price and total expected
costs, after making suitable allowances for technical and other risks including the impact of global economic uncertainties and climate
change. Revenue and associated margin are therefore recognised progressively as costs are incurred and as risks have been mitigated or
retired. The Group has determined that this method appropriately depicts the Group’s performance in transferring control of the goods
and services to the customer.
If the over-time criteria for revenue recognition are not met, revenue is recognised at the point in time that control is transferred to the
customer which is usually when legal title passes to the customer and the business has the right to payment, for example, on delivery.
When it is probable that total contract costs will exceed total contract revenue the expected loss is recognised immediately as an expense.
Software licences
The Group sells software licences either separately or together with other goods and services, including computer hardware and
implementation, hosting and support. Revenue recognition in respect of software licences sold as part of a bundle of goods and services
is considered separately when the licence is determined to be a separate performance obligation. Software licences either represent a right
to access the Group’s intellectual property as it exists throughout the licence period or a right to use the Group’s intellectual property as it
exists at the point in time at which the licence is granted. Revenue in respect of a right to access licence is recognised over the licence term
or, in relation to perpetual licences, over the related customer relationship. Revenue in respect of a right-to-use licence is recognised on
delivery of the software to the customer or, if the customer chooses not to access and take delivery of the software, on expiry of the licence
arrangement. A software licence is considered to be a right to access the Group’s intellectual property as it exists throughout the licence
period if all of the following criteria are satisfied:
– the contract requires, or the customer reasonably expects, that the Group will undertake activities that significantly affect the
intellectual property;
– the licence directly exposes the customer to the effects of those activities; and
– those activities do not result in the transfer of a good or service to the customer.
Contract modifications
The Group’s contracts are often amended for changes in customers’ requirements and specifications. A contract modification exists
when the parties to the contract approve a modification that either changes existing, or creates newly enforceable, rights and obligations.
The effect of a contract modification on the transaction price, and the Group’s measure of progress towards the satisfaction of the
performance obligation to which it relates, is recognised in one of the following ways:
1. prospectively, as an additional, separate contract;
2. prospectively, as a termination of the existing contract and creation of a new contract; or
3. as part of the original contract using a cumulative catch-up.
The majority of the Group’s contract modifications are treated under either 1 (for example, the requirement for additional distinct goods
or services) or 3 (eg a change in the specification of the distinct goods or services for a partially completed contract), although the facts
and circumstances of any contract modification are considered individually as the types of modifications will vary and may result
in different accounting outcomes.
Costs to obtain a contract
The Group expenses pre-contract bidding costs which are incurred regardless of whether a contract is awarded. The Group does not
typically incur costs to obtain contracts that it would not have incurred had the contracts not been awarded, such as sales commission.
Costs to fulfil a contract
Contract fulfilment costs in respect of over-time contracts are expensed as incurred. Contract fulfilment costs in respect of point in time
contracts are accounted for under IAS 2 Inventories.
Reporting segments
The Group has five sectors which, together with HQ, make its six reporting segments as defined by IFRS 8 Operating Segments. The SMS
business, which was acquired in February 2024, has been reported within the pre-existing Electronic Systems reporting segment. SMS has
been combined with the existing Electronic Systems business due to the similarities in services and products offered, being the provision
of advanced defence electronic solutions such as tactical missile and munition subsystems, C4ISR, and civil and military space electronics.
– Electronic Systems comprises the US- and UK-based electronics solutions business and the US-based SMS business. The teams deliver
electronic warfare systems, navigation 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, electric
drive propulsion systems as well as space electronics, spacecraft and ground systems.
– Platforms & Services, with operations in the US, Sweden and UK, manufactures and upgrades combat vehicles, weapons and munitions,
and delivers services and sustainment activities, including naval ship repair, and the management and operation of two government-
owned contractor-operated ammunition plants.
– Air comprises the Group’s UK-based air build and support activities for European and international markets, US programmes, development
of our Future Combat Air System and FalconWorks®, alongside our business in the Kingdom of Saudi Arabia and interests in our European
joint ventures: Eurofighter and MBDA.
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Notes to the Consolidated financial statements continued
2. Segmental analysis and revenue recognition continued
Reporting segments continued
– Maritime comprises the Group’s UK-based maritime and land activities, including ship build and support activities, major submarine
build programmes, as well as our Australian business.
– Cyber & Intelligence comprises the US-based Intelligence & Security business and UK-headquartered Digital Intelligence business,
which have been aggregated together due to the similarities of the services offered. Together, they cover the Group’s cyber security
activities for national security, central government and government enterprises.
– HQ comprises the Group’s head office and UK-based shared services activities.
The Board (the chief operating decision maker as defined by IFRS 8 Operating Segments) monitors the results of these reporting segments
to assess performance and make decisions about the allocation of resources. Segmental performance is evaluated based on key performance
indicators – sales
1
and underlying EBIT
2
. Net finance costs and tax expense are managed on a Group basis.
Revenue and sales
1
by reporting segment
Sales to equity Deduct: Add back: Share of sales by equity
Revenue accounted investments
accounted investments
Sales
1
2024 2023 2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m £m £m
Electronic Systems
7,186
5,456
(258)
(253)
261
255
7,189
5,458
Platforms & Services
4,344
3,842
–
–
46
80
4,390
3,922
Air
6,880
6,517
(1,413)
(1,405)
3,052
2,946
8,519
8,058
Maritime
6,002
5,391
(6)
(5)
191
150
6,187
5,536
Cyber & Intelligence
2,411
2,321
–
–
–
–
2,411
2,321
HQ
24
10
–
–
179
461
203
471
26,847
23,537
(1,677)
(1,663)
3,729
3,892
28,899
25,766
Intra-group revenue/sales
(535)
(459)
(29)
(23)
–
–
(564)
(482)
26,312
23,078
(1,706)
(1,686)
3,729
3,892
28,335
25,284
Revenue from
external customers
Intra-group revenue
2024 2023 2024 2023
£m £m £m £m
Electronic Systems
6,988
5,299
198
157
Platforms & Services
4,288
3,796
56
46
Air
6,840
6,484
40
33
Maritime
5,915
5,305
87
86
Cyber & Intelligence
2,271
2,194
140
127
HQ
10
–
14
10
26,312
23,078
535
459
Revenue and sales
1
by customer location
Revenue
Sales
1
2024 2023 2024 2023
£m £m £m £m
UK
7,039
6,102
7, 439
6,629
Europe (excluding UK)
1,733
1,533
2,842
2,706
US
12,559
10,700
12,536
10,672
Canada
189
177
189
177
Kingdom of Saudi Arabia
2,892
2,687
2,962
2,688
Qatar
259
450
468
711
Australia
1,158
943
1,170
949
Asia and Pacific (excluding Australia)
354
264
455
421
Other
129
222
274
331
26,312
23,078
28,335
25,284
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BAE Systems plc  Annual Report 2024
Consolidated financial statements
2. Segmental analysis and revenue recognition continued
Revenue by major customer
Revenue from the Group’s three principal customers, which individually represent over 10% of total revenue, is as follows:
2024 2023
£m £m
US Department of Defense
8,189
7,518
UK Ministry of Defence
6,478
5,766
Kingdom of Saudi Arabia Ministry of Defense
2,810
2,607
Revenue from the UK Ministry of Defence and the US Department of Defense was generated by the five reporting segments, excluding HQ.
Revenue from the Kingdom of Saudi Arabia Ministry of Defense was generated by the Air segment.
Operating profit/(loss) by reporting segment
Amortisation of
programme, customer-
related and other intangible
assets, and impairment
Finance and tax expense/ of equity accounted
Operating (income) of equity investments and
profit/(loss) accounted investments
intangible assets
Adjusting items
Underlying EBIT
2
2024 2023 2024 2023 2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m £m £m £m £m
Electronic Systems
708
806
–
–
307
93
56
(21)
1,071
878
Platforms & Services
456
373
9
2
–
–
(17)
(21)
448
354
Air
1,009
948
(14)
1
10
–
2
–
1,007
949
Maritime
465
423
4
2
5
–
–
–
474
425
Cyber & Intelligence
182
179
–
–
22
20
(5)
–
199
199
HQ
(135)
(156)
10
28
–
3
(59)
2
(184)
(123)
Operating profit
2,685
2,573
9
33
344
116
(23)
(40)
3,015
2,682
Net finance costs
(353)
(247)
Profit before tax
2,332
2,326
Tax expense
(291)
(386)
Profit for the year
2,041
1,940
1. Sales is an alternative performance measure defined in the Alternative performance measures section on page 220. Sales includes revenue from the Group’s
subsidiaries as well as the Group’s share of revenue of equity accounted investments, recognising the strategic importance in its industry of its equity accounted
investments. It is presented here as our internal measure of segmental performance and to provide additional information on performance to the user.
2. Underlying EBIT is an alternative performance measure defined in the Alternative performance measures section on page 220. It provides a measure of operating
profitability, excluding one-off events or adjusting items that are not considered to be part of the ongoing operational transactions of the business, to enable
management to monitor the performance of recurring operations over time, and which is comparable across the Group. It is presented here as our internal measure
of segmental performance and to provide additional information on performance to the user.
155BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
2. Segmental analysis and revenue recognition continued
Adjusting items
Adjusting items are items of financial performance which have been determined by management as being material by their size or incidence
and not relevant to an understanding of the Group’s underlying business performance. Adjusting items include profit or loss on business
transactions, the impact of substantively enacted tax rate changes, and costs incurred which are one-off in nature, for example non-routine
costs or income relating to post-retirement benefit schemes, and other items which management has determined as not being relevant to
an understanding of the Group’s underlying business performance.
2024
Adjusting items in 2024 totalled a net gain of £23m. This comprised a net profit on disposal of a number of business of £94m, the most
significant being the partial disposal of the Group’s partial shareholding in Air Astana which generated a profit of £75m. In addition,
we recognised a settlement gain of £13m on a US pension buy-out. This was offset by £72m of acquisition and integration-related costs,
primarily in relation to Ball Aerospace, and £12m of other charges related to historical transactions.
2023
Adjusting items in 2023 comprises a £60m settlement gain on a US pension annuity buy-out recognised within Electronic Systems, Platforms
& Services and Cyber & Intelligence, partially offset by £13m costs related to the Ball Aerospace acquisition in Electronic Systems, and £7m
related to current and historical business acquisitions in Cyber & Intelligence and HQ.
Performance obligations
The Group’s order book, which represents its unsatisfied performance obligations, as at 31 December 2024 was £60.4bn (2023 £58.0bn).
The Group expects that approximately 35% (2023 34%) of the order book will be recognised as revenue during the next year, with the
remainder largely recognised over the following four (2023 four) years.
For each performance obligation to be recognised over time, the Group recognises revenue using an input method, based on costs incurred
in the year. Revenue and attributable margin are calculated by reference to reliable estimates of transaction price and total expected costs,
after making suitable allowances for technical and other risks. Revenue and associated margin are therefore recognised progressively as costs
are incurred, and as risks have been mitigated or retired. The Group has determined that this method appropriately depicts the Group’s
performance in transferring control of the goods and services to the customer. Accordingly, revenue of £0.2bn (2023 £0.3bn) was recognised
during the year in respect of performance obligations satisfied or partially satisfied in previous years.
156
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Consolidated financial statements
3. Operating costs
Research and development
The Group undertakes research and development activities either on its own behalf or on behalf of customers, including research and
development expenditure in relation to the Group’s Sustainability Accelerator Fund.
Group-funded expenditure on research, and on development activities not meeting the conditions for capitalisation, is written off as
incurred and charged to the Consolidated income statement.
2024 2023
Note £m £m
Inventories recognised as an expense
9,085
7,873
Staff costs
4
9,252
8,091
Depreciation
663
564
Amortisation
10
422
218
Impairment – intangible assets
10
6
5
Impairment – property, plant and equipment
11
6
–
Acquisition and integration-related costs
32
72
20
Loss on disposal of property, plant and equipment, and investment property
18
1
Other operating charges
4,582
4,145
Operating costs
24,106
20,917
Operating costs includes research and development expenditure of £357m (2023 £274m) funded by the Group. Development investment
of £8m (2023 £8m) was capitalised during the year (see note 10).
Fees payable to the Company’s auditor and its associates included in operating costs
2024
2023
UK Overseas Total UK Overseas Total
£’000 £’000 £’000 £’000 £’000 £’000
Fees payable to the Company’s auditor for the audit of the
Company’s annual accounts
3,145
–
3,145
3,043
–
3,043
Fees payable to the Company’s auditor and its associates
for other services to the Group:
The audit of the Company’s subsidiaries
5,579
8,578
14,157
5,444
6,953
12,397
Total audit fees
8,724
8,578
17,302
8,487
6,953
15,440
Audit-related assurance services
1
1,405
4
1,409
1,281
52
1,333
Other non-audit services
1
–
1
13
–
13
Total non-audit fees
2
1,406
4
1,410
1,294
52
1,346
Total fees payable to the Company’s auditor and its associates
10,130
8,582
18,712
9,781
7,0 05
16,786
1. Audit-related assurance services principally comprises fees in respect of the review of the Group’s Half-yearly report, along with European Single Electronic Format
(ESEF) controls and ESG assurance work.
2. In addition to the amounts shown above, the auditor received fees of £500k (2023 £518k) for the audit of the BAE Systems UK pension schemes and £392k (2023 £423k)
for the audit of BAE Systems US pension schemes.
157BAE Systems plc  Annual Report 2024
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Notes to the Consolidated financial statements continued
4. Employees
The average and year-end numbers of Group employees, excluding employees of equity accounted investments, were as follows:
Average
At year end
2024 2023 2024 2023
Number Number Number Number
’000 ’000 ’000 ’000
Electronic Systems
22
17
22
18
Platforms & Services
12
12
12
12
Air
21
20
21
20
Maritime
28
26
30
28
Cyber & Intelligence
11
11
11
11
HQ
3
3
4
3
97
89
100
92
The aggregate staff costs of Group employees, excluding employees of equity accounted investments, were as follows:
2024 2023
Note £m £m
Wages and salaries
7,999
6,983
Social security costs
615
536
Share-based payments
29
144
110
Pension costs – defined contribution plans
24
334
309
Pension costs – defined benefit plans
24
133
128
Other post-employment benefit costs
24
27
25
9,252
8,091
5. Other income
2024 2023
Note £m £m
Research and development expenditure credits
45
53
Operating lease income from investment property
1
3
Operating lease income from subleasing right-of-use assets
–
1
Gain on divestment of interest in equity accounted investments and other business disposals
33
94
–
Profit on disposal of investment property
12
11
Management recharges to equity accounted investments
30
3
8
Royalties
31
28
Pensions settlement gain
24
13
60
Other
67
40
Other income
266
204
158
BAE Systems plc  Annual Report 2024
Consolidated financial statements
6. Net finance costs
Finance income and finance costs
Finance income and finance costs are recognised in the Consolidated income statement in the year in which they are incurred.
2024 2023
Note £m £m
Interest income on cash and other financial instruments
116
130
Interest income on finance lease receivables
12
1
1
Net interest income on post-employment benefit obligations
24
18
41
Finance income
135
172
Interest expense on loans and other financial instruments
(482)
(286)
Facility fees
(4)
(14)
Interest expense on lease liabilities
12
(73)
(53)
Net present value expenses on provisions and other payables
(13)
(9)
Loss on remeasurement of financial instruments at fair value through profit or loss
1,2
(6)
(267)
Foreign exchange gains
2,3
90
210
Finance costs
(488)
(419)
Net finance costs
(353)
(247)
1. Comprises gains and losses on derivative financial instruments, principally held to manage the Group’s exposure to interest rate fluctuations on current and anticipated
external borrowings and exchange rate fluctuations on balances with the Group’s subsidiaries and equity accounted investments.
2. The net gain or loss on remeasurement of financial instruments at fair value through profit or loss and the net gain or loss on foreign exchange are presented within
finance costs as the gains and losses relate to the same underlying transactions.
3. Foreign exchange gains reflects exchange rate movements on US dollar-denominated borrowings and balances with the Group’s subsidiaries and equity
accounted investments.
7. Tax expense
Income tax expense comprises current and deferred tax. Current and deferred tax is recognised in the Consolidated income statement,
except to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income.
Current tax
Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes. Deferred tax is not recognised for temporary differences:
– on the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting
nor taxable profit or loss, except for transactions giving rise to equal taxable and deductible temporary differences, or to temporary
differences associated with right-of-use assets and lease liabilities;
– related to investments in subsidiaries and equity accounted investments to the extent that it is probable that they will not reverse in
the foreseeable future; and
– arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the
laws that have been enacted or substantively enacted by the reporting date.
The Group’s underlying effective tax rate is sensitive to the geographic mix of profits and is impacted by the UK’s enactment of the
Organisation for Economic Co-operation and Development’s Global Anti-Base Erosion Model Rules (Global Minimum Tax) effective
from 1 January 2024. The Group has applied the temporary exception issued by the International Accounting Standards Board from
the accounting requirements for deferred taxes in IAS 12. Accordingly, the Group neither recognises nor discloses information about
deferred tax assets and liabilities related to Global Minimum Tax income taxes.
159
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Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
7. Tax expense continued
Tax expense
2024 2023
£m £m
Current tax
UK:
Current year
(157)
(103)
Adjustments in respect of prior years
27
(8)
(130)
(111)
Overseas:
Current year
(230)
(477)
Adjustments in respect of prior years
292
(132)
62
(609)
Total current tax
(68)
(720)
Deferred tax
UK:
Origination and reversal of temporary differences
(19)
(11)
Adjustments in respect of prior years
8
(13)
Tax rate adjustment
–
1
(11)
(23)
Overseas:
Origination and reversal of temporary differences
43
228
Adjustments in respect of prior years
(255)
129
(212)
357
Total deferred tax
(223)
334
Tax expense
(291)
(386)
UK
(141)
(134)
Overseas
(150)
(252)
Tax expense
(291)
(386)
Reconciliation of tax expense
The following table reconciles the theoretical income tax expense, using the UK corporation tax rate, to the reported tax expense. The UK
corporation tax rate increased from 19% to 25% with effect from 1 April 2023. A blended rate of 23.5% is used in the prior year comparative
column below to reflect this change. The reconciling items represent, besides the impact of tax rate differentials and changes, non-taxable
benefits or non-deductible expenses arising from differences between the local tax base and the reported financial statements.
2024 2023
£m £m
Profit before tax
2,332
2,326
UK corporation tax rate
25.0%
23.5%
Expected income tax expense
(583)
(547)
Effect of tax rates in foreign jurisdictions, including US state taxes
3
(7)
Expenses not tax effected
(12)
(19)
Income not subject to tax
162
125
Research and development tax credits
38
22
Adjustments in respect of prior years
72
(24)
Adjustments in respect of equity accounted investments
55
48
Tax rate adjustment
–
1
Other
(26)
15
Tax expense
(291)
(386)
160 BAE Systems plc  Annual Report 2024
Consolidated financial statements
7. Tax expense continued
Tax recognised in other comprehensive income
2024
2023
Tax Tax
Before (expense)/ Before benefit/
tax benefit Net of tax tax (expense) Net of tax
£m £m £m £m £m £m
Items that will not be reclassified to the income statement:
Consolidated:
Remeasurements on post-employment benefit schemes
414
(25)
389
(658)
4
(654)
Remeasurement of other investments
–
–
–
(11)
–
(11)
Share of the other comprehensive income/(expense) of associates
and joint ventures accounted for using the equity method
16
(1)
15
(25)
–
(25)
Items that may be reclassified to the income statement:
Consolidated:
Currency translation on foreign currency net investments
4
–
4
(510)
–
(510)
Reclassification of cumulative currency translation reserve
on divestment of interest in equity accounted investments
and other business disposals
3
–
3
–
–
–
Fair value loss arising on hedging instruments during the year
(36)
8
(28)
(4)
1
(3)
Cumulative fair value loss/(gain) on hedging instruments reclassified
to the income statement
69
(15)
54
(19)
2
(17)
Share of the other comprehensive income/(expense) of associates
and joint ventures accounted for using the equity method
4
–
4
12
(1)
11
474
(33)
441
(1,215)
6
(1,209)
2024
2023
Other Retained Other Retained
reserves earnings Total reserves earnings Total
£m £m £m £m £m £m
Current tax
Consolidated:
Remeasurements on post-employment benefit schemes
and other investments
–
11
11
–
76
76
–
11
11
–
76
76
Deferred tax
Consolidated:
Remeasurements on post-employment benefit schemes
and other investments
–
(36)
(36)
–
(72)
(72)
Fair value loss arising on hedging instruments during the year
8
–
8
1
–
1
Cumulative fair value (loss)/gain on hedging instruments reclassified
to the income statement
(15)
–
(15)
2
–
2
Share of the other comprehensive income of associates and joint
ventures accounted for using the equity method
–
(1)
(1)
(1)
–
(1)
(7)
(37)
(44)
2
(72)
(70)
Tax on other comprehensive (income)/expense
(7)
(26)
(33)
2
4
6
161
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Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
8. Earnings per share
The number of ordinary shares outstanding at the start of the year is calculated by taking the total number of ordinary shares in issue,
less treasury shares and shares held in trust which are contingently returnable (i.e. where the performance conditions attached to those
shares have not been met, excluding the passage of time). The weighted average number of ordinary shares purchased, issued or
released is calculated by reference to the day on which each transaction occurred.
The weighted average number of ordinary shares used in calculating earnings per share is the number of ordinary shares outstanding
at the start of the year, less the weighted average number of shares repurchased, plus the weighted average number of shares issued
within the year (including those issued from treasury), and those shares held in trust that are no longer contingently returnable (i.e. all
performance conditions attached to them are met, excluding the passage of time).
The weighted average number of ordinary shares used in calculating diluted earnings per share is the weighted average number of
ordinary shares outstanding, plus the number of ordinary shares which are considered potentially dilutive ordinary shares in respect
of share incentive schemes, should the vesting conditions have been met as at the year end.
Contingently Outstanding Weighted
returnable shares for average
shares purpose of share
Ordinary Treasury held earnings per movement
shares shares in trust share in the year
Movement in shares for the purpose of calculating earnings per share millions millions millions millions millions
At 1 January 2023
3,297
(220)
(22)
3,055
Ordinary shares repurchased in the year
(58)
–
–
(58)
(38)
Net shares issued in the year
–
16
2
18
14
At 31 December 2023
3,239
(204)
(20)
3,015
Ordinary shares repurchased in the year
(44)
–
–
(44)
(20)
Net shares issued in the year
–
20
5
25
18
At 31 December 2024
3,195
(184)
(15)
2,996
2024 2023
Number Number
of shares of shares
millions millions
Outstanding shares for purpose of earnings per share at 1 January
3,015
3,055
Average ordinary shares repurchased in the year
(20)
(38)
Average ordinary shares issued in the year (net)
18
14
Weighted average shares for the purpose of calculating basic earnings per share at 31 December
3,013
3,031
Incremental ordinary shares in respect of employee share schemes
40
41
Weighted average shares for the purpose of calculating diluted earnings per share at 31 December
3,053
3,072
2024
2023
Profit for the year attributable to equity shareholders (£m)
1,956
1,857
Basic earnings per share (pence)
64.9
61.3
Diluted earnings per share (pence)
64.1
60.4
162
BAE Systems plc  Annual Report 2024
Consolidated financial statements
9. Goodwill
Under the acquisition method for business combinations, goodwill is the acquisition-date fair value of the consideration transferred, less
the net of the acquisition-date fair values of the identifiable assets acquired and liabilities assumed. On acquisition of joint ventures and
associates, goodwill is included in the carrying value of equity accounted investments. Gains and losses on the disposal of an entity
include the carrying amount of goodwill relating to the entity sold.
Goodwill is not amortised, but is tested annually for impairment, and carried at cost less accumulated impairment losses.
Impairment
Goodwill is tested annually for impairment as required by IAS 36 Impairment of Assets. For the purposes of impairment testing, goodwill
is allocated to Cash-Generating Units (CGUs), or a group of CGUs on a consistent basis. The impairment calculations require the use of
estimates of the future profitability and cash-generating ability of the CGU to determine its value in use based on the Group’s five-year
IBP and the pre-tax discount rate used in discounting these projected cash flows.
An impairment loss is recognised whenever the carrying amount of an asset or its CGU exceeds its recoverable amount, which is the
greater of its value in use and its fair value less cost of disposal. In assessing value in use, the estimated future cash flows are discounted
to their present value using an appropriate pre-tax discount rate. For an asset that does not generate largely independent cash flows,
the recoverable amount is determined for the CGU to which the asset belongs.
Impairment losses are recognised in the Consolidated income statement. An impairment loss in respect of goodwill is not reversed.
Goodwill
Note £m
Cost or valuation
At 1 January 2023
16,593
Business acquisitions
3
Foreign exchange adjustments
(545)
At 31 December 2023
16,051
Business acquisitions
32
1,812
Business disposals
(3)
Foreign exchange adjustments
128
At 31 December 2024
17, 988
Impairment
At 1 January 2023
4,774
Foreign exchange adjustments
(109)
At 31 December 2023
4,665
Foreign exchange adjustments
26
At 31 December 2024
4,691
Net book value
At 31 December 2024
13,297
At 31 December 2023
11,386
At 1 January 2023
11, 819
163
BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
9. Goodwill continued
Impairment testing
The recoverable amount of the Group’s goodwill is based on value in use, estimated using risk-adjusted future cash flow projections from
the five-year IBP and a terminal value based on the projections for the final year of that plan, with long-term growth rates between 1.0%
and 3.8% (2023 2.0%) applied across each significant group of CGUs. The IBP process includes the use of historical experience, available
government spending data and the Group’s order backlog, as well as the impact of evolving issues such as global economic uncertainty
and climate change. Pre-tax discount rates have been used in discounting the projected risk-adjusted cash flows and are adjusted for other
factors specific to each CGU, such as the territory and market in which they operate.
Significant CGUs
A summary of the significant CGUs is presented below.
Allocated goodwill
Pre-tax discount rate
2024 2023 2024 2023
Cash-Generating Unit
Key assumptions
£bn £bn % %
Electronic Systems Continued demand from the US Government for
5.1
5.0
9
9
(excluding Space & Mission Systems) electronic warfare systems (where the business has a
leadership position), other technology-based solutions
and growth in the commercial avionics market.
Space & Mission Systems
Continued demand from the US Government,
1.5
n/a
8
n/a
US Intelligence Community and civilian space agencies
for capabilities in the design, build and operation of
satellites and satellite systems, space electronics and
instrument payloads.
Platforms & Services
Continued demand in the Group’s principal markets for
3.6
3.6
9
9
existing and successor military tracked vehicles, naval
guns, missile launchers, artillery systems, munitions,
upgrade programmes and support, and in the US for
complex infrastructure and maritime services.
Maritime
Continued demand, primarily from the UK and Australian
1.4
1.5
9
10
Governments, for existing and successor programmes
for submarines, complex warships and munitions. This
includes upgrade and sustainment programmes in these
areas as well as in the field of air, electronic systems
and wide-area surveillance.
The Group has undertaken sensitivity analysis on the key assumptions used in the impairment testing against each group of CGUs to which
goodwill is allocated. Applying a reasonably possible change in any of these key assumptions did not cause the CGUs carrying amount to
exceed its recoverable amount.
Other CGUs
The remaining goodwill balance of £1.7bn (2023 £1.3bn) is allocated across multiple CGUs. No individual CGU exceeds 10% of the Group’s
total goodwill balance. The majority of the projected cash flows within these CGUs is primarily underpinned by expected levels of government
spending on defence, aerospace and security and the Group’s ability to capture a broadly consistent market share.
164
BAE Systems plc  Annual Report 2024
Consolidated financial statements
10. Other intangible assets
Other intangible assets are carried at cost or valuation, less accumulated amortisation and impairment losses.
Cost or valuation
Software
Software includes:
– Computer software licences acquired for use within the Group are capitalised as an intangible asset on the basis of the costs incurred
to acquire and bring to use the specific software;
– Software development costs that are directly associated with the production of identifiable and unique software products controlled
by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets.
Group-funded expenditure associated with enhancing or maintaining computer software programmes for sale is recognised as an
expense as incurred; and
– Software as a service cloud computing arrangements are not deemed to be controlled by the Group, and costs associated with the
implementation and ongoing receipt of these services are expensed as the costs are incurred.
Development costs
Development costs funded by the Group on activities applied to a plan or design for the production of new or substantially improved
products are capitalised as an internally generated intangible asset if certain conditions are met. The costs capitalised include materials,
direct labour and related overheads.
Programme and customer-related
Intangible assets recognised by the Group include those relating to ongoing programmes within businesses acquired, mainly in respect
of customer relationships and order backlog. These assets are initially recognised at their fair value at the acquisition date.
Other
Other intangible assets includes patents, trademarks and licences.
Amortisation
Amortisation on other intangible assets is charged to the Consolidated income statement on a straight-line basis over their estimated
useful lives.
For programme-related intangibles, amortisation is set on a programme-by-programme basis over the life of the individual programme.
Amortisation for customer-related intangibles is also set on an individual basis.
The estimated useful lives are as follows:
Software
up to 5 years
Development costs
up to 10 years
Programme and customer-related
up to 15 years
Other
up to 20 years
The Group has no indefinite-life intangible assets other than goodwill.
Impairment of intangible assets, property, plant and equipment, right-of-use assets, investment property and equity
accounted investments
The carrying amounts of the Group’s intangible assets (excluding goodwill), property, plant and equipment, right-of-use assets,
investment property and equity accounted investments are reviewed at each balance sheet date to determine whether there is any
indication of impairment, as required by IAS 36 Impairment of Assets. If any such indication exists, the asset’s recoverable amount is
estimated. For intangible assets that are not yet available for use, impairment testing is performed annually. In estimating the asset’s
recoverable amount, the Group takes into consideration the impact of the Group’s sustainability ambitions.
Impairment losses are recognised in the Consolidated income statement. An impairment loss in respect of other intangible assets,
property, plant and equipment, investment property and equity accounted investments is reversed if the subsequent increase in
recoverable amount can be related objectively to an event occurring after the impairment loss was recognised or if there has been a
change in the estimate used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
165
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Notes to the Consolidated financial statements continued
10. Other intangible assets continued
Development Programme and
Software costs customer-related Other Total
Note £m £m £m £m £m
Cost or valuation
At 1 January 2023
973
141
688
130
1,932
Additions:
Acquired separately
111
–
–
1
112
Internally developed
11
8
–
–
19
Business acquisitions
–
–
–
8
8
Disposals
(49)
–
(3)
(2)
(54)
Foreign exchange adjustments
(25)
(8)
(39)
(4)
(76)
At 31 December 2023
1,021
141
646
133
1,941
Additions:
Acquired separately
149
–
–
–
149
Internally developed
16
8
–
–
24
Business acquisitions
32
48
–
2,317
136
2,501
Disposals
(46)
(15)
(24)
(12)
(97)
Foreign exchange adjustments
(2)
2
17
1
18
At 31 December 2024
1,186
136
2,956
258
4,536
Amortisation and impairment
At 1 January 2023
663
91
286
67
1,107
Amortisation
103
4
97
14
218
Impairment charge
5
–
–
–
5
Disposals
(49)
–
(3)
(2)
(54)
Foreign exchange adjustments
(20)
(7)
(18)
(3)
(48)
At 31 December 2023
702
88
362
76
1,228
Amortisation
86
2
312
22
422
Impairment charge
6
–
–
–
6
Disposals
(46)
(15)
(24)
(12)
(97)
Foreign exchange adjustments
–
2
9
1
12
At 31 December 2024
748
77
659
87
1,571
Net book value
At 31 December 2024
438
59
2,297
171
2,965
At 31 December 2023
319
53
284
57
713
At 1 January 2023
310
50
402
63
825
Capital commitments
At 31 December 2024, capital expenditure of £43m (2023 £44m) in respect of intangible assets was contracted for but not provided for in
the Consolidated financial statements.
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Consolidated financial statements
11. Property, plant and equipment
Cost
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of self-constructed
assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. The cost of demonstration
assets is written off as incurred. The reimbursement of the cost of an item of property, plant and equipment by way of a government
grant is presented as deferred income and recognised in the Consolidated income statement on a basis consistent with the depreciation
of the asset over its estimated useful life.
Assets held for leasing out under operating leases are included in property, plant and equipment at cost less accumulated depreciation
and impairment losses.
Depreciation
Depreciation is provided, normally on a straight-line basis, to write off the cost of items of property, plant and equipment over their
estimated useful lives to any estimated residual value, using the following rates:
Buildings
up to 50 years, or the lease term if shorter
Plant and machinery:
Computing equipment and motor vehicles
4 to 5 years
Other equipment
10 to 20 years, or the project life if shorter
No depreciation is provided on freehold land and assets in the course of construction.
The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date,
taking into consideration the impact on the assets’ useful economic lives as a result of the Group’s sustainability ambitions.
Impairment
The carrying amounts of the Group’s property, plant and equipment are reviewed at each balance sheet date to determine whether
there is any indication of impairment in accordance with the policy shown in note 10.
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Notes to the Consolidated financial statements continued
11. Property, plant and equipment continued
Land and Plant and
buildings machinery Total
Note £m £m £m
Cost
At 1 January 2023
3,170
4,121
7,291
Additions
413
411
824
Reclassification between categories
(38)
38
–
Disposals
(33)
(104)
(137)
Foreign exchange adjustments
(82)
(127)
(209)
At 31 December 2023
3,430
4,339
7,769
Additions
386
585
971
Business acquisitions
32
464
230
694
Disposals
(32)
(99)
(131)
Business disposals
(7)
(24)
(31)
Foreign exchange adjustments
8
25
33
At 31 December 2024
4,249
5,056
9,305
Depreciation and impairment
At 1 January 2023
1,339
2,717
4,056
Depreciation
112
232
344
Disposals
(30)
(100)
(130)
Foreign exchange adjustments
(47)
(89)
(136)
At 31 December 2023
1,374
2,760
4,134
Depreciation
158
286
444
Impairment charge
5
1
6
Disposals
(30)
(96)
(126)
Business disposals
(3)
(16)
(19)
Foreign exchange adjustments
5
18
23
At 31 December 2024
1,509
2,953
4,462
Net book value
At 31 December 2024
1
2,740
2,103
4,843
At 31 December 2023
1
2,056
1,579
3,635
At 1 January 2023
1,831
1,404
3,235
1. Includes £1,262m (2023 £1,145m) of assets at Barrow-in-Furness, UK funded by the UK Government.
Assets in the course of construction
Included in the above analysis, the following balances relate to those assets which are still in the course of construction:
Land and Plant and
buildings machinery Total
£m £m £m
At 31 December 2024
579
658
1,237
At 31 December 2023
750
394
1,144
Capital commitments
At 31 December 2024, capital expenditure of £539m (2023 £442m) in respect of property, plant and equipment was contracted for but not
provided for in the Consolidated financial statements.
Assets pledged as security
Within the Land and buildings balance, there are assets with a carrying value of £160m (2023 £62m) which the Group cannot pledge as
security for borrowings or sell to another entity.
168
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Consolidated financial statements
12. Leases
The Group as lessee
All leases in which the Group is lessee are recognised as a right-of-use asset and a corresponding lease liability at the date at which the
leased asset is available for use by the Group. Each lease payment is allocated between repayment of the lease liability and finance cost.
The finance cost is charged to the Consolidated income statement over the lease term to produce a constant periodic rate of interest on
the lease liability. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
The lease liability is initially measured as the present value of future lease payments, discounted using the Group’s incremental borrowing
rate, where the interest rate implicit in the lease is not determinable. The Group’s incremental borrowing rate is the interest rate the Group
would have to pay to borrow the amount necessary to obtain an asset of similar value, in a similar economic environment with similar
terms and conditions.
The right-of-use asset is initially measured at cost, comprising the initial value of the lease liability, any lease payments made (net of any
incentives received from the lessor) before the commencement of the lease, any initial direct costs and any restoration costs.
The carrying amounts of the Group’s right-of-use assets are reviewed at each balance sheet date to determine whether there is any
indication of impairment in accordance with the policy shown in note 10.
Payments in respect of short-term leases, low-value leases and leases of intangible assets are charged to the Consolidated income
statement on a straight-line basis over the lease term.
The Group leases land, buildings, vehicles and equipment under non-cancellable lease arrangements. The leases have varying terms, including
escalation clauses, renewal rights and purchase options. None of these terms represents unusual arrangements or creates material onerous or
beneficial rights or obligations.
Right-of-use assets
2024
2023
Land and Plant and Land and Plant and
buildings machinery Total buildings machinery Total
Note £m £m £m £m £m £m
Net book value at 1 January
1,280
31
1,311
1,400
25
1,425
Additions
494
21
515
115
19
134
Business acquisitions
32
77
–
77
–
–
–
Lease modifications
53
2
55
20
(1)
19
Depreciation
(203)
(16)
(219)
(202)
(12)
(214)
Business disposals
(1)
–
(1)
–
–
–
Foreign exchange adjustments
20
(3)
17
(53)
–
(53)
Net book value at 31 December
1,720
35
1,755
1,280
31
1,311
Lease liabilities
A maturity analysis of the future undiscounted lease payments in respect of the Group’s lease liabilities is presented in the table below:
2024 2023
£m £m
Payments due:
Within one year
260
197
Between one and five years
891
537
Later than five years
1,342
1,229
Total undiscounted gross payments
2,493
1,963
Deduct: Impact of discounting
(652)
(543)
Lease liabilities
1,841
1,420
The Group is also committed to future undiscounted lease payments of £76m in respect of leases which had not yet commenced at
31 December 2024 (2023 £68m).
The total cash outflow for leases in the year ended 31 December 2024, including short-term leases and low-value leases, amounted to £295m
(2023 £376m).
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Notes to the Consolidated financial statements continued
12. Leases continued
Amounts recognised in the Consolidated income statement
2024 2023
£m £m
Included in operating costs:
Depreciation on right-of-use assets
(219)
(214)
Short-term lease expense
(25)
(25)
Low-value lease expense
(8)
(5)
(252)
(244)
Included in net finance costs:
Interest income on finance lease receivables
1
1
Interest expense on lease liabilities
(73)
(53)
(72)
(52)
13. Equity accounted investments
Equity accounted investments comprise joint ventures and associates. A joint venture is a joint arrangement whereby the parties that
have joint control have rights to the net assets of the arrangement. An associate is an entity over which the Group has significant
influence but not control or joint control.
The Group recognises its share of the profit or loss and other comprehensive income of equity accounted investments as a separate line
in the Consolidated income statement and Consolidated statement of comprehensive income, respectively.
The carrying value of an equity accounted investment comprises the Group’s share of net assets and purchased goodwill, and is assessed
for impairment as a single asset. The carrying amounts of the Group’s equity accounted investments are reviewed at each balance sheet
date to determine whether there is any indication of impairment, in accordance with the policy shown in note 10.
Group summary
The Group has two individually material joint ventures which are Eurofighter Jagdflugzeug and MBDA, the carrying values of which are
included below.
The Group also has a number of individually immaterial joint ventures and associates, the carrying values of the most significant of which at
31 December 2024 are as follows: Rheinmetall BAE Systems Land (RBSL) (£89m), FADEC International (£47m), Air Astana (£37m), and Panavia
Aircraft (£19m). The following table shows a reconciliation of opening to closing carrying value for both the Group’s principal and immaterial
joint ventures and associates in aggregate. The fair value of the Group’s investment in Air Astana as at 31 December 2024 was £74m.
The following table shows a reconciliation of the opening to closing carrying values for both the Group’s principal and other joint ventures
and associates.
Principal equity
accounted Other joint Other
investments ventures associates Total
£m £m £m £m
At 1 January 2023
528
167
92
787
Group’s share of profit for the year
165
39
4
208
Group’s share of remeasurements on post-employment benefit schemes
(24)
(1)
–
(25)
Tax on items that may be reclassified to the income statement
(1)
–
–
(1)
Foreign exchange adjustments
3
3
–
6
Amounts recognised in hedging reserve
2
4
–
6
Group’s share of total comprehensive income for the year
145
45
4
194
Acquisition of equity accounted investments
–
5
–
5
Dividends received from equity accounted investments
(110)
(24)
–
(134)
Foreign exchange adjustments
(12)
(8)
–
(20)
At 31 December 2023
551
185
96
832
Group’s share of profit for the year
197
10
6
213
Group’s share of remeasurements on post-employment benefit schemes
16
–
–
16
Tax on items that will not be reclassified to the income statement
(1)
–
–
(1)
Foreign exchange adjustments
4
(1)
–
3
Amounts recognised in hedging reserve
(1)
2
–
1
Group’s share of total comprehensive income for the year
215
11
6
232
Divestment of interest in equity accounted investments
–
(56)
–
(56)
Dividends received from equity accounted investments
(135)
(22)
(1)
(158)
Foreign exchange adjustments
(28)
1
–
(27)
At 31 December 2024
603
119
101
823
170
BAE Systems plc  Annual Report 2024
Consolidated financial statements
13. Equity accounted investments continued
Contingent liabilities
The Group is not aware of any material contingent liabilities in respect of its equity accounted investments.
Principal equity accounted investments
Principally
Joint venture
Principal activities
Shareholding
operates in
Eurofighter Jagdflugzeug
Management and control of the European Typhoon programme
33.3%
Germany
MBDA
Development and manufacture of guided weapons
37.5%
Europe
The following tables summarise the financial information of the Group’s principal equity accounted investments included in their own
financial statements, as adjusted for fair value adjustments at acquisition and differences in accounting policies, and reconcile this to the
Group’s interest in those equity accounted investments.
2024
2023
Eurofighter Eurofighter
Jagdflugzeug MBDA Jagdflugzeug MBDA
£m £m £m £m
Revenue (100%)
4,187
4,159
4,169
3,871
Underlying EBIT
1
excluding depreciation and amortisation
38
603
23
568
Depreciation and amortisation
(4)
(149)
(4)
(138)
Finance income
10
229
3
145
Finance costs
(2)
(30)
(3)
(13)
Tax expense
(13)
(156)
(9)
(130)
Profit for the year (100%)
29
497
10
432
Remeasurements on post-employment benefit schemes, net of tax
–
40
–
(65)
Amounts recognised in hedging reserve, net of tax
–
(2)
–
4
Foreign exchange adjustments
–
12
–
8
Total comprehensive income for the year (100%)
29
547
10
379
Group’s share of total comprehensive income for the year
10
205
3
142
Non-current assets
2
29
3,100
29
2,717
Cash and cash equivalents
27
5,065
43
4,109
Current assets excluding cash and cash equivalents
9,892
5,486
9,089
4,626
Current assets
9,919
10,551
9,132
8,735
Non-current financial liabilities excluding trade and other payables, and provisions
–
(6)
–
(15)
Other non-current liabilities
(47)
(66)
(45)
(85)
Non-current liabilities
(47)
(72)
(45)
(100)
Current financial liabilities excluding trade and other payables, and provisions
(13)
–
(9)
–
Other current liabilities
(9,851)
(12,033)
(9,077)
(9,942)
Current liabilities
(9,864)
(12,033)
(9,086)
(9,942)
Net assets (100%)
37
1,546
30
1,410
1. Underlying EBIT is an alternative performance measure defined in the Alternative performance measures section on page 220.
2. Includes MBDA’s share of the net IAS 19 surplus in the Group’s defined benefit schemes of £100m (2023 £56m).
2024
2023
Eurofighter Eurofighter
Jagdflugzeug MBDA Total Jagdflugzeug MBDA Total
£m £m £m £m £m £m
Group’s share of net assets
12
580
592
10
529
539
Goodwill adjustment
–
11
11
–
12
12
Carrying value
12
591
603
10
541
551
2024
2023
Eurofighter Eurofighter
Jagdflugzeug MBDA Total Jagdflugzeug MBDA Total
£m £m £m £m £m £m
Dividends received
6
129
135
2
108
110
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Notes to the Consolidated financial statements continued
14. Trade, contract and other receivables
Trade and contract receivables are measured at amortised cost under IFRS 9 Financial Instruments as they are held within a business
model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal
amount outstanding.
Contract receivables represent amounts for which the Group has an unconditional right to consideration in respect of unbilled revenue
recognised at the balance sheet date and comprise costs incurred plus attributable margin.
Trade receivables, contract receivables, amounts owed by equity accounted investments and finance lease receivables include a provision
for expected credit losses. The Group measures the provision at an amount equal to lifetime expected credit losses, estimated by
reference to past experience and relevant forward-looking factors.
The Group writes off a receivable when there is objective evidence that the debtor is in significant financial difficulty and there is no
realistic prospect of recovery, for example, when a debtor enters bankruptcy or financial reorganisation.
US deferred compensation plan assets are measured at fair value in accordance with IAS 19 Employee Benefits.
2024 2023
Note £m £m
Non-current
Contract receivables
108
18
Prepayments
168
215
US deferred compensation plan assets
367
340
Finance lease receivables
18
15
Other receivables
73
45
734
633
Current
Contract receivables
3,749
3,377
Trade receivables
1,357
1,196
Amounts owed by equity accounted investments
30
52
77
Prepayments
1,005
933
Accrued income
27
19
US deferred compensation plan assets
50
42
Finance lease receivables
6
9
Other receivables
417
532
6,663
6,185
Trade receivables are stated net of a provision for expected credit losses. Disclosures relating to the ageing of trade receivables and movements
in the provision for expected credit losses are provided in note 15.
172
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Consolidated financial statements
15. Other financial assets and liabilities and financial risk management
Derivative financial instruments and hedging activities
The international nature of the Group’s business means it is exposed to volatility in currency exchange rates. In order to protect itself
against currency fluctuations, the Group’s policy is to hedge all material firm transactional exposures.
The Group uses interest rate derivative instruments to manage the Group’s exposure to interest rate fluctuations on its borrowings
and deposits by varying the proportion of fixed-rate debt relative to floating-rate debt over the forward time horizon.
The Group uses foreign exchange derivative instruments to manage the Group’s exposure to currency fluctuations on its borrowings
and deposits with the Group’s subsidiaries and equity accounted investments.
In accordance with its Treasury policy, the Group does not hold derivative financial instruments for trading purposes.
The Group aims to achieve hedge accounting treatment for all derivatives that hedge material foreign currency exposures.
Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, such instruments are stated at fair
value at the balance sheet date. The fair values are estimated by discounting expected future cash flows based on reputable third-party
forecast data, and then adjusting for credit risk, including the Group’s own credit risk, and market risk.
Fair value through profit or loss
Gains and losses on derivative financial instruments that are not designated as cash flow hedges are recognised within net finance costs
in the Consolidated income statement for the year.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the exposure to variability in cash flows relating to a highly-probable
forecast transaction (income or expense) or recognised asset or liability, the effective portion of any change in the fair value of the
instrument is recognised in other comprehensive income and presented in the hedging reserve in equity. Amounts recognised in equity
are removed from the hedging reserve and included in the cost of the underlying transaction or reclassified to the Consolidated income
statement when the underlying transaction affects profit or loss. These amounts are presented within the same line item in the
Consolidated income statement as the underlying transaction, typically revenue or operating costs. The ineffective portion of any change
in the fair value of the instrument is recognised in the Consolidated income statement within net finance costs immediately. The Group
treats the foreign currency basis element of the designated foreign exchange derivative hedging instruments as a cost of hedging and as
such it is excluded from the hedge designation. Any hedges entered into on behalf of equity accounted investments (note 30) are
classified as cash flow hedges.
2024
2023
Assets Liabilities Assets Liabilities
£m £m £m £m
Non-current
Cash flow hedges – foreign exchange contracts
152
(169)
127
(170)
Debt-related derivative financial instruments
110
(21)
100
(57)
Other foreign exchange/interest rate contracts
3
(3)
–
–
265
(193)
227
(227)
Current
Cash flow hedges – foreign exchange contracts
163
(225)
162
(184)
Debt-related derivative financial instruments
–
–
–
(21)
Other foreign exchange/interest rate contracts
49
(39)
43
(90)
212
(264)
205
(295)
Debt-related derivative financial instruments
The debt-related derivative financial instruments represent the fair value of cross-currency, interest rate and foreign exchange derivatives
relating to the US$500m 7.5% bond, repayable 2027 and the US$1,300m 3.4% bond, repayable 2030 (see note 21). In the comparative
year, there were also debt-related derivative financial instruments in respect of the US$800m 3.8% bond, repayable 2024 and the
US$400m 5.8% bond, repayable 2041.
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Notes to the Consolidated financial statements continued
15. Other financial assets and liabilities and financial risk management continued
Interest rate risk
The Group’s objective is to manage its exposure to interest rate fluctuations on borrowings through varying the proportion of fixed-rate debt
relative to floating-rate debt with derivative instruments, including interest rate and cross-currency swaps.
The Group’s interest rate management policy is that a minimum of 50% (2023 50%) and a maximum of 90% (2023 90%) of borrowings are
maintained at fixed interest rates. At 31 December 2024, the Group had 86% (2023 86%) of fixed-rate debt and 14% (2023 14%) of floating-
rate debt based on a gross debt of £8.3bn (2023 £5.1bn), including debt-related derivative financial assets.
Based on contracted maturities and/or repricing dates, the following amounts are exposed to interest rate risk over the future as shown below:
2024
2023
Within Between one Later than Within Between one Later than
one year and two years two years one year and two years two years
£m £m £m £m £m £m
Cash and cash equivalents
3,378
–
–
4,067
–
–
Loans
1,197
1,197
1,197
703
–
–
The floating-rate debt has been predominantly achieved by entering into interest rate swaps which swap the fixed-rate US dollar interest
payable on debt into a floating rate. New interest rate swaps were entered into in the year in relation to the debt issued on financing of the
Ball Aerospace acquisition (see note 21). At the end of 2024, the Group had a total of $1.5bn (2023 $0.9bn) of this type of swap outstanding
with a weighted average duration of 3.2 years (2023 0.8 years). In respect of the fixed-rate debt, the weighted average period in respect of
which interest is fixed was 11.6 years (2023 12.4 years). Given the level of short-term interest rates during the year, the average cost of the
floating-rate debt was 6.0% (2023 7.7%) on US dollars. The cost of the fixed-rate debt was 4.3% (2023 3.7%).
Sensitivity analysis
A change of 100 basis points in short-term rates applied to the average fixed/floating mix and level of borrowings would vary the interest cost
to the Group by approximately £12m (2023 £7m).
In respect of cash deposits, given the fluctuation in the Group’s working capital requirements, cash is generally invested for short-term periods
based at floating-interest rates. A change of 100 basis points in the average interest rates during the year applied to the average cash deposits
would vary the interest receivable by approximately £23m (2023 £29m). Should interest rates fluctuate by a different rate to those disclosed,
the impact can be linearly interpolated.
174
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Consolidated financial statements
15. Other financial assets and liabilities and financial risk management continued
Liquidity risk
Contractual cash outflows on financial liabilities
The contracted cash outflows on loans, derivative financial instruments and other financial instruments at the reporting date are shown
below, classified by maturity. The cash outflows are shown on a gross basis, are not discounted, are translated at the spot rate and include
estimated interest payments where applicable. Contracted cash outflows reflect the gross cash outflow on derivative financial instruments
and exclude the broadly offsetting cash inflows for the receive leg of derivatives that are settled separately to the pay leg.
2024
2023
Contracted cash outflow
Contracted cash outflow
Between Later Between Later
Within one and than Within one and than
Carrying one five five Carrying one five five
amount year years years Total amount year years years Total
£m £m £m £m £m £m £m £m £m £m
Cash outflows without directly
offsetting inflows
Accruals
1
(1,713)
(1,684)
(29)
–
(1,713)
(1,758)
(1,739)
(19)
–
(1,758)
Trade and other payables
2
(3,440)
(3,351)
(89)
–
(3,440)
(2,681)
(2,660)
(21)
–
(2,681)
Lease liabilities
(1,841)
(260)
(891)
(1,342)
(2,493)
(1,420)
(197)
(537)
(1,229)
(1,963)
Loans
(8,412)
(977)
(3,295)
(8,071)
(12,343)
(5,111)
(825)
(1,585)
(4,794)
(7,204)
(15,406)
(10,970)
Cash outflows with largely
offsetting inflows
3
Cash flow hedges – financial assets
315
(5,199)
(4,932)
(1,465)
(11,596)
289
(6,003)
(4,623)
(135)
(10,761)
Cash flow hedges – financial liabilities
(394)
(7,154)
(6,026)
(1,310)
(14,490)
(354)
(6,775)
(6,127)
(477)
(13,379)
Debt-related derivatives – financial assets
110
(23)
(347)
(36)
(406)
100
(23)
(370)
(36)
(429)
Debt-related derivatives – financial
liabilities
(21)
(35)
(141)
(1,018)
(1,194)
(78)
(92)
(141)
(1,053)
(1,286)
Other foreign exchange/interest
rate contracts – financial assets
52
(2,977)
–
–
(2,977)
43
(2,674)
–
–
(2,674)
Other foreign exchange/interest
rate contracts – financial liabilities
(42)
(2,045)
(327)
–
(2,372)
(90)
(1,468)
–
–
(1,468)
20
(90)
(15,386)
(11,0 6 0)
1. Accruals presented in the table excludes £1,082m (2023 £910m) of accruals which are non-financial liabilities.
2. Trade and other payables excludes other taxes and social security costs, deferred income and US deferred compensation plan liabilities (see note 23) on the basis that
these are non-financial liabilities.
3. Cash outflows in relation to derivatives presented in this table do not include the cash inflows which would be received when closing out the trades. These cash inflows
are expected to largely offset all outflows presented within this table.
Borrowing facilities
The Group’s objective is to maintain adequate undrawn committed borrowing facilities.
At 31 December 2024, the Group had a committed Revolving Credit Facility (RCF) of £2bn (2023 £2bn). During the year, the Group exercised
the first of two one-year extension options, taking the maturity of the facility to 2029. The RCF was undrawn throughout the year. The RCF also
acts as a backstop to Commercial Paper issued by the Group. At 31 December 2024, the Group had no Commercial Paper in issue (2023 £nil).
175
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Notes to the Consolidated financial statements continued
15. Other financial assets and liabilities and financial risk management continued
Currency risk
The Group’s objective is to reduce its exposure to transactional volatility in earnings and cash flows from movements in foreign currency
exchange rates, mainly the US dollar, euro, Saudi riyal and Australian dollar.
The Group is exposed to movements in foreign currency exchange rates in respect of foreign currency-denominated transactions. All material
firm transactional exposures are hedged using foreign exchange forward contracts and the Group aims, where possible, to apply cash flow
hedge accounting to these transactions.
The currency and notional amount of the designated hedging instruments match the currency and principal amounts of the forecast
transactions being hedged; therefore, the hedging instruments and hedged items have values which will generally move in opposite directions
because of the same hedged risk. As the critical terms of the hedging instruments match those of the hedged items, an economic relationship
can be demonstrated on an ongoing basis.
The hedge ratio is 1:1 on the basis that the notional amount of the designated hedging instruments matches the principal amount of the
forecast foreign currency sales/purchases designated as the hedged items. The Group does not designate groups of items with offsetting risk
positions as hedged items.
The Group considers the potential sources of hedge ineffectiveness to be:
– valuation adjustments for credit risk made to derivative hedging instruments at each hedge effectiveness measurement date;
– changes to the timing and amount of forecast transactions; and
– non-occurrence of the designated hedged items.
Foreign currency basis is excluded from the currency hedge designation and was highly immaterial.
The Group enters into derivative contracts with varying maturities up to 2034. The following table presents the sterling nominal amounts
of the foreign currency contracts used to hedge foreign currency risk, split by maturity profile, along with the exchange rate:
2024
2023
Currency purchased
Currency sold
Currency purchased
Currency sold
Notional Notional Notional Notional
Weighted value of Weighted value of Weighted value of Weighted value of
average currency average currency average currency average currency
hedged purchased hedged sold hedged purchased hedged sold
(Purchase)/sale contracts
Maturity date
rate £m rate £m rate £m rate £m
Sterling/US dollar
Within one year
1.27
(2,015)
1.28
2,627
1.26
(2,762)
1.27
2,657
Between one and five years
1.27
(1,304)
1.26
1,728
1.26
(1,608)
1.27
1,898
Later than five years
1.30
(10)
1.30
10
1.33
(13)
1.40
5
Sterling/euro
Within one year
1.15
(2,944)
1.15
2,550
1.12
(2,725)
1.12
2,525
Between one and five years
1.11
(3,207)
1.11
3,165
1.10
(2,913)
1.09
2,702
Later than five years
1.06
(1,455)
1.06
1,449
1.07
(136)
1.07
133
Other
Within one year
n/a
(2,243)
n/a
2,222
n/a
(2,208)
n/a
2,209
Between one and five years
n/a
(1,814)
n/a
1,815
n/a
(1,795)
n/a
1,781
Later than five years
n/a
(27)
n/a
25
n/a
(333)
n/a
326
Cash flow hedges
(15,019)
15,591
(14,493)
14,236
The effect of cash flow hedges on the Group’s financial position and performance for the year is as follows:
2024
2023
Change in the Change in Change in the Change in
value of the value value of the value
hedging of hedged hedging of hedged
instruments items since Notional Carrying instruments items since Notional Carrying
since 1 January 1 January amount amount since 1 January 1 January amount amount
(Purchase)/sale contracts £m £m £m £m £m £m £m £m
Sterling/US dollar
(24)
24
1,036
(28)
44
(44)
177
(29)
Sterling/euro
(15)
15
(442)
(17)
(5)
5
(414)
(2)
Other
3
(3)
(22)
(34)
(43)
43
(20)
(34)
Cash flow hedges
(36)
36
572
(79)
(4)
4
(257)
(65)
176
BAE Systems plc  Annual Report 2024
Consolidated financial statements
15. Other financial assets and liabilities and financial risk management continued
Currency risk continued
Sensitivity analysis
The Group is exposed to movements in foreign currency exchange rates in respect of the translation of net assets and income statements
of foreign subsidiaries and equity accounted investments. The Group does not hedge the translation effect of exchange rate movements
on the income statements or balance sheets of foreign subsidiaries and equity accounted investments it regards as long-term investments.
The estimated impact on foreign exchange gains and losses in net finance costs of a ten cent movement in the closing sterling to US dollar
exchange rate on the retranslation of US dollar-denominated bonds held by BAE Systems plc is approximately £545m (2023 £229m).
The Group enters into cash flow hedges in order to manage all material firm transactional exposures. The estimated impact on fair value gains
and losses in other reserves of a ten cent movement in the closing sterling to US dollar exchange rates on the transactional cash flow hedges
is approximately £85m (2023 £16m). The estimated impact of a ten cent movement in the closing sterling to euro exchange rate on the
transactional cash flow hedges is approximately £35m (2023 £35m).
Credit risk
For trade receivables, contract receivables, amounts due from equity accounted investments and finance lease receivables, the Group measures
a provision for expected credit losses at an amount equal to lifetime expected credit losses, estimated by reference to past experience and
relevant forward-looking factors.
The Group’s assessment is that credit risk in relation to defence-related sales to government customers or subcontractors to governments
is extremely low as the probability of default is insignificant; therefore, the provision for expected credit losses is immaterial in respect of
receivables from these customers. For all non-government commercial customers, the Group assesses expected credit losses, including risk
arising from global economic uncertainty; however, this is not considered material to the financial statements. The Group considers that default
has occurred when a receivable is past 180 days overdue, unless there is evidence of recoverability, because historical experience indicates that
these receivables are generally not recoverable. The Group recognises a provision of 100% against all receivables over 180 days past due
unless there is evidence that individual receivables in this category are recoverable.
The carrying amount of the Group’s financial assets represents the maximum exposure to credit risk.
Movements on the provision for expected credit losses for trade receivables are as follows:
2024 2023
£m £m
At 1 January
20
20
Business acquisitions
1
–
Net remeasurement of loss allowance
3
3
Amounts written off
(5)
(3)
At 31 December
19
20
For contract receivables, amounts due from equity accounted investments and finance lease receivables the expected credit loss provision
is immaterial as the probability of default is considered insignificant.
The Group writes off a receivable when there is evidence that the debtor is in significant financial difficulty and there is no realistic prospect
of recovery, for example, when a debtor enters bankruptcy or financial reorganisation. The ageing of trade receivables is detailed below:
2024
2023
Gross Provision Net Gross Provision Net
£m £m £m £m £m £m
Not past due
895
–
895
822
–
822
Up to 180 days overdue
438
(3)
435
336
(1)
335
Past 180 days overdue
43
(16)
27
58
(19)
39
1,376
(19)
1,357
1,216
(20)
1,196
Cash management
Cash flow forecasting is performed by the businesses on a monthly basis. The Group monitors a rolling forecast of its liquidity requirements
to ensure that there is sufficient cash to meet operational needs and maintain adequate headroom.
Surplus cash held by the businesses over and above balances required for working capital management is loaned to the Group’s centralised
treasury department. Surplus cash is invested in instant-access current accounts, short-term deposits and money market funds, choosing
instruments with appropriate maturities or sufficient liquidity to provide adequate headroom as determined by cash flow forecasts.
The Group’s objective is to monitor and control counterparty credit risk and credit limit utilisation. The Group adopts a conservative approach
to the investment of its surplus cash which is deposited for short periods with financial institutions with investment-grade (BBB- and above)
credit ratings. The cash and cash equivalents balance at 31 December 2024 of £3,378m (2023 £4,067m) was invested with 40 (2023 42)
financial institutions. A credit limit is allocated to each institution taking account of its market capitalisation, credit rating and credit default
swap price. The cash and cash equivalents of the Group are invested in non-speculative financial instruments which are usually highly liquid,
such as short-term deposits. Therefore, the Group believes it has reduced its exposure to counterparty credit risk through this process.
177
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Notes to the Consolidated financial statements continued
15. Other financial assets and liabilities and financial risk management continued
Credit risk continued
The cash and cash equivalents balance is subject to review for impairment under IFRS 9 and, due to the high credit ratings of the
counterparties set out below, no impairment has been recognised within the year:
Counterparty credit rating at 31 December
2024
2023
AAA to AA-
62%
60%
A+ to A-
37%
39%
BBB+ to BBB-
1%
1%
Offsetting financial assets and liabilities
Financial assets and liabilities are offset, and the net amount reported in the balance sheet, when there is a legally enforceable right to offset
the recognised amounts. The following table sets out the Group’s financial assets and financial liabilities which are subject to a master netting
agreement. The master netting agreements regulate settlement amounts in the event a party defaults on their obligations.
2024
2023
Balance Amounts Net Balance Amounts Net
sheet not offset balance sheet not offset balance
£m £m £m £m £m £m
Assets
Other financial assets
477
(363)
114
432
(382)
50
Liabilities
Other financial liabilities
(457)
363
(94)
(522)
382
(140)
16. Deferred tax
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable
that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date
and reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate
to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities, but they intend to settle
current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
Deferred tax assets/(liabilities)
Net balance at
Deferred tax assets
Deferred tax liabilities
31 December
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Property, plant and equipment
13
17
(163)
(118)
(150)
(101)
Other intangible assets
66
41
(56)
(2)
10
39
Capitalised research and development
350
458
–
–
350
458
Provisions and accruals
256
229
–
–
256
229
Goodwill
–
–
(399)
(352)
(399)
(352)
Pension/post-employment schemes:
Deficits
39
80
–
–
39
80
US deferred compensation plans
115
106
–
–
115
106
Share-based payments
86
94
–
–
86
94
Financial instruments
16
21
(3)
(1)
13
20
Other items, including tax losses carried forward
30
28
(49)
(2)
(19)
26
Deferred tax assets/(liabilities)
971
1,074
(670)
(475)
301
599
Set off of tax
(656)
(465)
656
465
–
–
Net deferred tax assets/(liabilities)
315
609
(14)
(10)
301
599
178
BAE Systems plc  Annual Report 2024
Consolidated financial statements
16. Deferred tax continued
Movement in temporary differences during the year
At Foreign
At
1 January exchange Acquisitions Recognised Recognised
31 December
2024 adjustments and disposals in income
in equity
2024
£m £m £m £m
£m
£m
Property, plant and equipment
(101)
(3)
–
(46)
–
(150)
Other intangible assets
39
–
(57)
28
–
10
Capitalised research and development
458
6
–
(114)
–
350
Provisions and accruals
229
3
–
24
–
256
Goodwill
(352)
(7)
–
(40)
–
(399)
Pension/post-employment schemes:
Deficits
80
–
–
(5)
(36)
39
US deferred compensation plans
106
2
–
7
–
115
Share-based payments
94
–
–
23
(31)
86
Financial instruments
20
–
–
–
(7)
13
Other items, including tax losses carried forward
26
(3)
58
(100)
–
(19)
599
(2)
1
(223)
(74)
301
At Foreign
At
1 January exchange Acquisitions Recognised Recognised
31 December
2023 adjustments and disposals in income
in equity
2023
£m £m £m £m
£m
£m
Property, plant and equipment
(78)
7
–
(30)
–
(101)
Other intangible assets
13
–
–
26
–
39
Capitalised research and development
149
(17)
–
326
–
458
Provisions and accruals
233
(13)
–
9
–
229
Goodwill
(352)
21
–
(21)
–
(352)
Pension/post-employment schemes:
Deficits
97
(3)
–
(2)
(12)
80
UK additional pension contributions
60
–
–
–
(60)
–
US deferred compensation plans
102
(6)
–
10
–
106
Share-based payments
64
–
–
13
17
94
Financial instruments
16
–
–
1
3
20
Other items, including tax losses carried forward
29
(5)
–
2
–
26
333
(16)
–
334
(52)
599
Unrecognised deferred tax assets and liabilities
Deferred tax assets have not been recognised in respect of the following items:
2024
2023
Unrecognised Unrecognised
Gross deferred Gross deferred
amount tax asset amount tax asset
£m £m £m £m
Deductible temporary differences, including tax credits
2
2
2
2
Tax losses carried forward
502
114
438
89
504
116
440
91
These assets have not been recognised as the incidence of future profits in the relevant countries and legal entities cannot be accurately
predicted at this time.
The Group has not recognised any deferred tax liability on temporary differences totalling £158m (2023 £211m) relating to potentially taxable
unremitted earnings of overseas subsidiaries and equity accounted investments because the Group is in a position to control the timing of the
reversal of the temporary differences and none are expected to reverse in the foreseeable future.
Both the recognised and unrecognised UK deferred tax balances at 31 December 2024 have been calculated at 25% (2023 25%), which
reflects the rate at which they are expected to unwind.
179
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Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
17. Inventories
Inventories are stated at the lower of cost, including all relevant overhead expenditure, and net realisable value. Inventory cost is valued
using the most appropriate method based on the business use of inventory. In the majority of cases this is moving average unit cost, with
some businesses using standard cost or first in first out (FIFO) as methods more indicative of their use of inventory.
2024 2023
£m £m
Raw materials and consumables
746
646
Work-in-progress
471
437
Finished goods and goods for resale
107
73
1,324
1,156
The Group recognised £23m (2023 £4m) as a write down of inventories to net realisable value during the year.
18. Current tax
Current tax for the current and prior years is recognised as a liability to the extent that it has not yet been settled and as an asset to the
extent that the amounts already paid exceed the amount due or the benefit of a tax loss can be carried back to recover current tax of a
prior year. Current tax assets and liabilities are measured at the amount expected to be paid to or recovered from tax authorities, using
the rates that have been enacted or substantively enacted by the balance sheet date.
2024 2023
£m £m
Tax provisions
(78)
(370)
Research and development expenditure credits receivable
85
156
Other tax receivables
114
89
121
(125)
Represented by:
Current tax assets
176
160
Current tax liabilities
(55)
(285)
121
(125)
Tax provisions of £78m (2023 £370m) are in respect of known tax issues, of which £46m (2023 £71m) relates to the UK and £32m (2023 £299m)
relates to the US. Corresponding deferred tax assets are therefore recognised in relation to the same tax judgements, and have similarly
reversed in line with the reduction in current tax provisions.
19. Cash and cash equivalents
Cash and cash equivalents includes cash in hand, call and term deposits, investments in money market funds and other short-term liquid
investments with original maturities of three months or less and which are subject to an insignificant risk of change in value.
2024 2023
£m £m
Cash
604
502
Money market funds
1,227
1,375
Short-term deposits
1,547
2,190
3,378
4,067
Cash and cash equivalents includes £53m (2023 £59m) which is subject to regulatory restrictions and is therefore not available for general
use by other entities within the Group.
180
BAE Systems plc  Annual Report 2024
Consolidated financial statements
20. Geographical analysis of non-current assets
2024 2023
Asset location Note £m £m
UK
5,902
4,877
Europe (excluding UK)
2,326
2,065
US
14,316
10,167
Kingdom of Saudi Arabia
870
533
Australia
467
499
Asia and Pacific (excluding Australia)
8
8
23,889
18,149
Other investments
83
84
Other receivables
14
566
418
Post-employment benefit surpluses
24
1,271
804
Other financial assets
15
265
227
Deferred tax assets
16
315
609
Non-current assets
26,389
20,291
21. Loans
Loans are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, loans are stated at
amortised cost. Any difference between the amount initially recognised and the redemption value is recognised in the Consolidated
income statement over the period of the borrowings.
2024 2023
£m £m
Non-current
US$750m 3.85% bond, repayable 2025
–
587
US$500m 7.5% bond, repayable 2027
399
392
US$800m 5% bond, repayable 2027
636
–
US$1,250m 5.125% bond, repayable 2029
993
–
US$1,300m 3.4% bond, repayable 2030
1,032
1,013
US$1,000m 1.9% bond, repayable 2031
793
778
US$500m 5.25% bond, repayable 2031
397
–
US$1,500m 5.3% bond, repayable 2034
1,187
–
US$400m 5.8% bond, repayable 2041
317
311
US$550m 4.75% bond, repayable 2044
430
423
US$1,000m 3% bond, repayable 2050
784
770
US$201m 6.05%, private placement, repayable 2053
160
158
US$750m 5.5%, bond, repayable 2054
585
–
7,713
4,432
Current
US$800m 3.8% bond, repayable 2024
–
627
US$750m 3.85% bond, repayable 2025
598
–
US$201m 6.05%, private placement, repayable 2053
1
–
Accrued interest
100
52
699
679
The US$500m 7.5% bond, repayable 2027, was converted at issue to a sterling fixed-rate bond by utilising cross-currency swaps and had
an effective rate during 2024 of 7.8%.
The US$800m 5% bond, repayable 2027, has been converted to a dollar floating-rate bond by utilising interest rate swaps that mature in
March 2027 and had an effective rate during 2024 of 5.9%.
US$700m of the US$1,250m 5.125% bond, repayable 2029, has been converted to a dollar floating-rate bond by utilising interest rate swaps
that mature in March 2029 and had an effective rate during 2024 of 6.3%.
US$1,237m of the US$1,300m 3.4% bond, repayable 2030, was converted at issue to a sterling fixed-rate bond by utilising cross-currency
swaps and had an effective rate during 2024 of 3.5%.
181
BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
22. Contract liabilities
Contract liabilities represent the obligation to transfer goods or services to a customer for which consideration has been received, or
consideration is due, from the customer.
2024 2023
£m £m
Non-current
Contract liabilities
1,720
1,955
Current
Contract liabilities
4,504
3,865
6,224
5,820
Revenue recognised in the year includes £4,105m (2023 £3,573m) that was included in the opening contract liabilities balance.
Non-current and current contract liabilities as at 1 January 2023 were £945m and £3,882m, respectively.
23. Trade and other payables
Trade and other payables are stated at amortised cost.
US deferred compensation plan liabilities represent the present value of expected future payments required to settle the obligation
to employees in accordance with IAS 19 Employee Benefits.
2024 2023
Note £m £m
Non-current
Accruals
85
68
Amounts owed to equity accounted investments
30
8
10
Deferred income
1
1,287
1,144
US deferred compensation plan liabilities
398
361
Other payables
81
11
1,859
1,594
Current
Trade payables
1,084
866
Amounts owed to equity accounted investments
30
1,997
1,534
Other taxes and social security costs
198
73
Accruals
2,710
2,600
Deferred income
1
74
61
US deferred compensation plan liabilities
50
42
Other payables
270
260
6,383
5,436
1. Includes £1,337m (2023 £1,192m) of funding received from the UK Government for property, plant and equipment at Barrow-in-Furness, UK.
182 BAE Systems plc  Annual Report 2024
Consolidated financial statements
24. Post-employment benefits
Pension schemes
Defined contribution
Obligations for contributions are recognised as an expense in the Consolidated income statement as incurred.
Defined benefit
The cost of providing benefits is determined periodically by independent actuaries and charged to the Consolidated income statement
in the year in which those benefits are earned by the employees. Remeasurements, including actuarial gains and losses, are recognised in
the Consolidated statement of comprehensive income in the year in which they occur. Past service costs resulting from a plan amendment
or curtailment are recognised immediately in the Consolidated income statement.
The post-employment benefit surpluses and obligations recognised in the Group’s balance sheet represent the fair value of scheme
assets, less the present value of the defined benefit obligations calculated using a number of actuarial assumptions as set out on page
187. The bid values of scheme assets are not intended to be realised in the short term and may be subject to significant change before
they are realised. The present values of scheme liabilities are derived from cash flow projections over long periods and are, therefore,
inherently uncertain.
IAS 19 Employee Benefits limits the measurement of a defined benefit surplus to the lower of the surplus in the defined benefit scheme
and the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the scheme or
reductions in future contributions to the scheme. IFRIC 14 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and
their Interaction, issued in 2007, provides an interpretation of the requirements of IAS 19, clarifying that a refund is available if the entity
has an unconditional right to a refund in certain circumstances. The Group has applied IFRIC 14 and has determined that there is no limit
on the recognition of the surpluses in its defined benefit pension schemes as at 31 December 2024. In the UK the surpluses have been
recognised on the basis that the future economic benefits are unconditionally available to the Group, which is assumed to be via a
refund. These have been recognised after deducting a 25% (2023 35%) withholding tax which would be levied prior to the future
refunding of any surplus and have been presented on a net basis as this is not deemed to be an income tax.
The Group operates a number of multi-employer schemes which their equity accounted investments and strategic partners participate
in. Where the Group is a participating employer of a multi-employer scheme, the Group has recognised only its share of the IAS 19
pension surpluses and deficits based on liability agreements with those partners and on the relative shares of contributions paid into the
schemes. Whilst this methodology is intended to reflect a reasonable estimate of the share of the surplus or deficit, it may not accurately
reflect the obligations of the participating employers.
In the event that an employer who participates in the Group’s pension schemes fails or cannot be compelled to fulfil its obligations as
a participating employer, the remaining participating employers are obliged to collectively take on its obligations. The Group considers
the likelihood of this event arising as remote.
The Group’s share of the IAS 19 pension surplus or deficit allocated to equity accounted investments is included in the balance sheet
within equity accounted investments (see note 13).
Background
Pension schemes
BAE Systems plc operates pension schemes for the Group’s qualifying employees in the UK, US and other countries. The UK and US operate a
number of funded defined benefit schemes, and the assets are held in separate trustee-administered funds. The largest funded defined benefit
scheme is the BAE Systems Pension Scheme – BAE Systems Section (Main Scheme) which represents 92% (2023 93%) of the UK IAS 19 defined
benefit obligation at 31 December 2024. The remainder of the UK IAS 19 defined benefit obligation is in respect of three other schemes, the
largest being the Royal Ordnance Pension Scheme which represents 5% (2023 5%) of the UK IAS 19 defined benefit obligation. The schemes
in other countries are primarily defined contribution schemes.
At 31 December 2024, the weighted average durations of the UK and US defined benefit pension obligations were 12 years (2023 13 years)
and 10 years (2023 11 years), respectively.
The split of the defined benefit pension liability on a funding basis between active, deferred and pensioner members for the Main Scheme
and US schemes in aggregate is set out below:
Active Deferred Pensioner
% % %
Main Scheme
1
27
19
54
US schemes
2
38
17
45
Royal Ordnance Pension Scheme
3
12
16
72
1. Source: 31 March 2024 actuarial valuation report.
2. Source: Annual updates of the US schemes as at 1 January 2024.
3. Source: 31 March 2022 actuarial valuation report.
183BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
24. Post-employment benefits continued
Regulatory framework
The funded UK schemes are registered and subject to the statutory scheme-specific funding requirements outlined in UK legislation,
including the payment of levies to the Pension Protection Fund as set out in the Pension Act 2004. These schemes were established under
trust and the responsibility for their governance lies jointly with the Trustees and the Group.
The funded US schemes are tax-qualified pension schemes regulated by the Pension Protection Act 2006 and insured by the Pension Benefit
Guaranty Corporation (PBGC) up to certain limits. These schemes were established under, and are governed by, the US Employee Retirement
Income Security Act 1974 and the BAE Systems Administrative Committee is a named fiduciary with the authority to manage their operation.
The schemes’ assets are held in the BAE Systems Master Pension Investment Trust and the trustee is The Northern Trust Company. The US
schemes received a favourable determination letter from the Internal Revenue Service (IRS) dated 6 July 2017, stating that the US schemes
and related Master Trust are designed in accordance with applicable sections of the IRS Code and, therefore, are exempt from tax.
Once qualified, the US schemes are required to operate in conformity with the Code to maintain qualification.
Benefits
The UK defined benefit schemes provide benefits to members in the form of a set level of pension payable for life based on members’ final
salaries. The majority of benefits attract inflation-related increases both in deferment and payment. All UK defined benefit schemes are
closed to new entrants, with benefits for new employees being provided through a defined contribution scheme. The Normal Retirement
Age for the majority of active members of the Main Scheme is 65. Specific benefits applicable to members differ between schemes. Further
details on the benefits provided by each scheme are provided on the BAE Systems Pensions website: baesystems.com/en-pensions/home.
The US defined benefit schemes cover eligible employees of BAE Systems, Inc. and certain adopting affiliates providing benefits based on
each employee’s final salary and service. The majority of the US defined benefit schemes ceased to be final salary schemes in January 2013.
Since then an annual accrual of $1,000 is credited to participants’ accumulated plan benefits. Vested benefits are payable upon retirement,
death, disability, and in certain circumstances upon termination of employment. The Normal Retirement Age for the US pension schemes
is 65.
Other post-employment benefits
The Group operates a number of non-pension retirement benefit schemes, under which certain employees are eligible to receive benefits
after retirement or on leaving the Group, the majority of which relate to the provision of medical benefits to retired employees of the Group’s
subsidiaries in the US.
Funding
Introduction
Disclosures in respect of pension funding are provided below. Disclosures in respect of pension accounting under IAS 19 are provided
on pages 187 to 194.
The majority of the UK and US defined benefit pension schemes are funded by the Group’s subsidiaries and equity accounted investments.
The individual pension schemes’ funding requirements are based on actuarial measurement frameworks set out in their funding policies.
The funding valuations are performed by professionally qualified independent actuaries and include assumptions which differ from the
actuarial assumptions used for IAS 19 accounting purposes shown on page 187. The purpose of the funding valuations is to design funding
plans which ensure that the schemes have sufficient funds available to meet future benefit payments.
184
BAE Systems plc  Annual Report 2024
Consolidated financial statements
24. Post-employment benefits continued
Funding continued
UK valuations
Funding valuations of the Group’s UK defined benefit pension schemes are performed at least every three years. The most recent
triennial funding valuation for the Main Scheme was carried out as at 31 March 2024. This valuation was concluded and signed off
on 6 February 2025.
The results of the most recent triennial valuation for the Main Scheme are shown below. This valuation was agreed with the Trustees
and certified by the Scheme Actuary after consultation with the Pensions Regulator in the UK.
Main
Scheme as at
31 March 2024
£bn
Market value of assets
19.2
Present value of liabilities
(18.4)
Funding surplus
0.8
Percentage of accrued benefits covered by the assets at the valuation date
104%
The other UK schemes were also in surplus at their most recent triennial valuations.
The valuations were determined using the following mortality assumptions:
Life expectancy of a male currently aged 65 (years)
86 – 89
Life expectancy of a female currently aged 65 (years)
88 – 90
Life expectancy of a male at age 65, currently aged 45 (years)
88 – 91
Life expectancy of a female at age 65, currently aged 45 (years)
90 – 93
As part of the process of the Main Scheme’s 2021 valuation, the Trustees and the Group agreed to update the methodology to use a cash flow
matching strategy, such that assets are invested with the aim of the expected income directly matching the expected benefit payments of the
Main Scheme. The most recent triennial valuation at 31 March 2024 has been carried out using the same principles. The cash flow matching
strategy aims to manage risk through a defined amount of risk buffer assets, which equate to the agreed prudence margin in the valuation. The
risk buffer assets are measured over time to ensure the Main Scheme is sufficiently funded. The asset portfolio is currently invested in a
selection of bonds designed to match the pension payments for current pensioners, as well as a mix of growth-seeking assets aimed to
generate returns for the pension payments for future pensioners. Over time, assets from the return-seeking portfolio will be realised to
purchase additional, lower-risk assets to match the increasing current pensioner payments.
The valuations for the other schemes use a different method in that discount rates were directly based on prudent levels of expected returns
for the assets held by the schemes, reflecting the planned investment strategies and maturity profiles of each scheme. The discount rates are
curves which provide a different rate for each year into the future. Under IAS 19, the discount rate for accounting purposes is based on
third-party AA corporate bond yields.
The inflation assumptions for each of the valuations were derived based on the difference between the yields on index-linked and fixed-interest
long-term government bonds. The inflation assumption is a curve which provides a different rate for each year into the future.
There have been no changes to the contributions or benefits, as set out in the rules of the schemes, for pension scheme members as a result
of the new funding valuation.
The results of future triennial valuations and associated funding requirements will be impacted by a number of factors, including the future
performance of investment markets and anticipated members’ longevity.
185
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Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
24. Post-employment benefits continued
Funding continued
US valuations
The Group’s US pension schemes are valued annually, with the latest valuations performed as at 1 January 2024. The actuarial present value
of accumulated plan benefits is determined by an independent actuary and uses actuarial assumptions to adjust the accumulated plan benefits
earned by participants to reflect the time value of money and the probability of payment between the valuation date and the expected date
of payment.
Contributions
Under the terms of the trust deeds of the UK schemes, the Group is required to have a funding plan determined at the conclusion of the
triennial funding valuations.
Equity accounted investments make regular contributions to the schemes in which they participate in line with the schedule of contributions
and are allocated a share of funding contributions.
In 2024, total employer contributions to the Group’s pension schemes were £407m (2023 £274m), including amounts funded by equity
accounted investments of £22m (2023 £30m), and included approximately £48m (2023 £68m) of payments associated with the share
buyback programme in respect of the Main Scheme and £156m (2023 £9m) of contributions to the US schemes, the significant majority
of which were to improve the funding position of the US schemes.
Contributions in 2025 to the Group’s pension schemes are expected to be at a lower level than 2024, primarily reflecting the impact of
updated market conditions on the cost of benefit accrual and the one-off nature of the majority of the US contributions made in 2024.
Risk management
The defined benefit pension schemes expose the Group to actuarial risks, including market (investment) risk, interest rate risk, inflation risk
and longevity risk.
Risk
Mitigation
Market (investment) risk The investment portfolios are highly diversified, investing in a wide range of assets, in order to
Asset returns may not move reduce the exposure of the total portfolio to a materially adverse impact from a single security or type
in line with the liabilities and of security. To reduce volatility, certain assets are held in a matching portfolio, which largely consists
may be subject to volatility. of index-linked bonds, gilts and swaps, designed to mirror movements in corresponding liabilities.
Environmental (including exposure to climate-related risks), social and governance factors are
incorporated into the investment analysis and decision-making process carried out by the Trustees
of the UK schemes. There is alignment between the UK Main Scheme and the Company’s climate
change objectives with consistent long-term decarbonisation ambitions.
Interest rate risk The Main Scheme has adopted a cash flow matching strategy, whereby contractual income from
Liabilities are sensitive to assets is designed to directly match benefits paid to members each year. A portfolio of assets with
movements in interest rates, contractual income has been structured to match benefits already in payment, representing just over
with lower interest rates leading half of the liabilities. This inherently hedges the associated interest rate risk. As members retire and
to an increase in the valuation become pensioners, additional matching assets will be purchased to keep pace. Interest rate risk
of liabilities. associated with the remaining purchase of matching assets is mitigated via a hedging strategy
involving mainly physical assets and derivatives. The overall level of interest rate hedging on the
funding basis has increased over the years.
Inflation risk The Main Scheme’s cash flow matching strategy includes aligning asset income to the inflation-linked
Liabilities are sensitive to members’ benefit payments. Inflation risk is mitigated by the presence of caps on most inflation-linked
movements in inflation, with benefits and via a hedging strategy, executed with several banks to reduce counterparty risk.
higher inflation leading to The overall level of inflation hedging on the funding basis has increased over the years.
an increase in the valuation The Group’s US scheme benefits are not indexed with inflation.
of liabilities.
In
201
4,
the Main Scheme implemented a pension increase exchange to allow retired members to
elect for a higher current pension in exchange for foregoing certain rights to future pension increases.
Longevity risk Longevity adjustment factors are used in the majority of the UK pension schemes in order to adjust
Liabilities are sensitive to the pension benefits payable so as to share the cost of people living longer with employees.
life expectancy, with increases
In
201
3,
with the agreement of the Company, the Trustees of the 2000 Plan, Royal Ordnance
in life expectancies leading Pension Scheme and Shipbuilding Industries Pension Scheme (SIPS) entered into arrangements with
to an increase in the valuation Legal & General to insure against longevity risk for the current pensioner population, covering a total
of liabilities. of £4.4bn of pension scheme liabilities at that time. These arrangements reduce the funding volatility relating to increasing life expectancy. This longevity risk cover with Legal & General remains in place
following the 2019 merger of the 2000 Plan and SIPS into the Main Scheme.
186
BAE Systems plc  Annual Report 2024
Consolidated financial statements
24. Post-employment benefits continued
Virgin Media case
As noted in the Annual Report 2023, the Group is aware of the ‘Virgin Media v NTL Pension Trustees Ltd and others’ case and continues
to monitor developments in this area of the law with the help of its advisors. Following the Court of Appeal’s decision to uphold the ruling
of the High Court against Virgin Media, the Group has been considering the extent to which the defined benefit schemes are exposed
to the outcomes of this case and any resulting change in pension obligations, if any, is not anticipated to be material to the Company.
The Group is therefore satisfied that it remains appropriate to make no adjustment to the financial statements on this basis but will keep
the matter under review.
SMS business
In February 2024, the Group completed the acquisition of the US-based Ball Aerospace business from Ball corporation and formed our
new SMS business. This transaction included a funded defined benefit pension scheme, now referred to as the SMS Plan, which resulted
in the recognition of a net defined benefit obligation on acquisition of £147m. See note 32.
Settlement gain
In June 2024, $145m (£113m) of the US defined benefit obligation liabilities were settled via payment of a lump sum to participants.
The premium of $128m (£100m) created a one-off accounting gain of $17m (£13m). This gain has been recognised in the Consolidated
income statement and as an adjusting item.
Surplus recognition
A number of schemes are in an accounting surplus position. The surpluses have been recognised on the basis that the future economic
benefits are unconditionally available to the Group, which is assumed to be via a refund. The surplus has been recognised net of withholding
tax of 25% at 31 December 2024 (2023 35%) based on the enacted legislation at that date. This tax would be levied prior to the future
refunding of any surplus and therefore the surplus has been presented on a net basis as this is not deemed to be an income tax of the Group.
IAS 19 accounting
We have changed the presentation of our IAS 19 figures to show BAE Systems’ share of balances in all tables. Comparatives have also been
re-presented. There has been no change to the methodology of allocation or the underlying 2023 figures.
The disclosures below relate to post-retirement benefit schemes in the UK, US and other countries which are accounted for as defined benefit
schemes in accordance with IAS 19.
Principal actuarial assumptions
The assumptions used are estimates chosen from a range of possible actuarial assumptions which, due to the long-term nature of the obligation
covered, may not necessarily occur in practice.
UK
US
2024
2023
2022
2024
2023
2022
Financial assumptions
Discount rate – past service (%)
5.5
4.5
4.8
5.5
4.8
5.0
Discount rate – future service (%)
5.6
4.6
4.8
5.5
4.8
5.0
Retail Prices Index (RPI) inflation (%)
2.9
2.8
3.0
n/a
n/a
n/a
Rate of increase in salaries (%)
2.9
2.8
3.0
2.8
n/a
n/a
Rate of increase in deferred pensions (CPI/RPI) (%)
2.3/2.9
2.1/2.8
2.3/3.0
n/a
n/a
n/a
Rate of increase in pensions in payment (%)
1.7 – 3.6
1.6 – 3.6
1.7 – 3.6
n/a
n/a
n/a
Demographic assumptions
Life expectancy of a male currently aged 65 (years)
85 – 88
85 – 89
86 – 89
88
88
87
Life expectancy of a female currently aged 65 (years)
88 – 91
88 – 89
88 – 90
89
89
89
Life expectancy of a male currently aged 45 (years)
86 – 89
86 – 89
87 – 90
87
87
87
Life expectancy of a female currently aged 45 (years)
89 – 92
89 – 90
89 – 91
89
89
89
Discount rate
The discount rate assumptions are derived through discounting the projected benefit payments using a third-party AA corporate bond
yield curve to produce a single equivalent discount rate for the UK and US territories. This inherently captures the maturity profile of the
expected benefit payments. For the UK territory, the discount rate used for future service differs from that used for past service as it only
uses the cash flows relating to active members, which have a different duration. Further information on the duration of the schemes is
detailed on page 183.
Retail Prices Index (RPI) and Consumer Prices Index (CPI) inflation
In the UK, the inflation assumptions are derived by reference to the difference between the yields on index-linked and fixed-interest long-
term government bonds. Index-linked government bond prices contain a premium that investors are willing to pay to mitigate the risk that
RPI inflation is higher than expected. To account for this, the RPI assumption includes an inflation risk premium deduction.
The inflation risk premium deduction has been set at 0.55% per annum (2023 0.55%) and the CPI assumption has been set at 0.6% per annum
(2023 0.7%) lower than RPI. The resulting RPI assumption is 2.9% per annum and the CPI assumption is 2.3% per annum. The 0.6% per annum
RPI-CPI differential is a weighted average of a 1% per annum differential pre-2030 and 0.1% per annum differential post-2030; this reflects the
anticipated change to the RPI index from 2030. In the US, inflation assumptions are not relevant as the Group’s US pension schemes are not
indexed with inflation.
187
BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
24. Post-employment benefits continued
IAS 19 accounting continued
Rate of increase in salaries
The rate of increase in salaries for the UK schemes is assumed to be RPI inflation of 2.9% (2023 RPI inflation of 2.8%), plus a promotional scale.
From 1 January 2013, non-SMS Plan employees in the US schemes no longer accrue salary-related benefits. The SMS Plan does have salary
linked benefits and the salary growth assumption for these benefits is assumed to be 2.8%.
Rate of increase in deferred pensions
The rate of increase in deferred pensions for the UK schemes is based on CPI inflation of 2.3% (2023 2.1%), with the exception of the legacy
2000 Plan, which is based on RPI inflation of 2.9% (2023 2.8%). For all UK schemes, the rate of increase in deferred pensions is subject to
inflation caps.
Rate of increase in pensions in payment
The rate of increase in pensions in payment differs between UK schemes. Different tranches of the schemes’ benefits increase at rates based
on either RPI or CPI inflation, and some are subject to an inflation cap.
Life expectancy
For its UK pension schemes, the Group has used the Self-Administered Pension Schemes S3 mortality tables based on year of birth (as published
by the Institute and Faculties of Actuaries) for both pensioner and non-pensioner members, in conjunction with the results of an investigation
into the actual mortality experience of scheme members and information on the demographic profile of the scheme’s membership.
In addition, to allow for future improvements in longevity, the Continuous Mortality Investigation 2023 tables (published by the Institute
of Actuaries) have been used (in 2023, the Continuous Mortality Investigation 2022 tables were used), with an assumed long-term rate
of mortality improvements of 1.0% per annum (2023 1.0%), an initial rate adjustment parameter (‘A’) of 0.2% (2023 0.2%), a smoothing
parameter (‘Sk’) of 7 (2023 7) and the following weighting (‘W’) parameters: W2023 35%, W2022 35% (2023 35%), W2021 0% (2023 0%),
W2020 0% (2023 0%).
For the majority of the US schemes, the mortality tables used at 31 December 2024 are a blend of the fully generational PRI-2012 White Collar
table and the PRI-2012 Blue Collar table, both projected using November 2024 Aon Endemic Projection Scale MP-2021.
US healthcare schemes
The latest valuations of the principal schemes, covering retiree medical and life insurance schemes in certain US subsidiaries, were performed
by independent actuaries as at 1 January 2024. These valuations were rolled forward to reflect the information at 31 December 2024. The
method of accounting for these is similar to that used for defined benefit pension schemes.
Long-term healthcare cost is assumed to increase at 5.1% per annum (2023 5.0%). This is based on an assumed increase in 2024 of 7.5%
for pre-retirement and 6.0% for post-retirement, with both rates then reducing to 4.5% by 2034 and remaining at 4.5% per annum each
year thereafter.
Summary of movements in post-employment benefit obligations
Kingdom
UK defined US and of Saudi
benefit other US Arabia end
pension pension healthcare of service
schemes schemes schemes benefit Total
£m £m £m £m £m
Surplus/(deficit) at 1 January 2024
649
(307)
55
(168)
229
Actual return on assets excluding amounts included in net finance costs
(1,628)
(94)
(4)
–
(1,726)
Decrease in liabilities due to changes in financial assumptions
1,745
179
4
14
1,942
Decrease/(increase) in liabilities due to changes in demographic assumptions
46
(19)
12
1
40
Experience gains/(losses)
95
46
2
(5)
138
Contributions in excess of/(below) service cost
138
114
(2)
(11)
239
Settlements
–
13
–
–
13
Business acquisitions
–
(147)
–
–
(147)
Net interest income/(expense)
58
(18)
4
(8)
36
Foreign exchange adjustments
–
3
–
(1)
2
Movement in withholding tax on surpluses
1
2
–
–
–
2
Surplus/(deficit) at 31 December 2024
1,105
(230)
71
(178)
768
1. This includes £113m from the increase in the surplus offset by £115m from the change in withholding tax rate from 35% to 25%.
188 BAE Systems plc  Annual Report 2024
Consolidated financial statements
24. Post-employment benefits continued
IAS 19 accounting continued
Amounts recognised on the balance sheet
The table below shows a reconciliation between the Group’s share of scheme assets and liabilities of the UK, US and other post-employment
benefit schemes and the amounts recognised on the Group’s balance sheet.
2024
UK Kingdom
defined US and of Saudi
benefit other US Arabia end
pension pension healthcare of service
schemes schemes schemes benefit Total
£m £m £m £m £m
Present value of unfunded obligations
(92)
(97)
–
(178)
(367)
Present value of funded obligations
(16,128)
(2,974)
(108)
–
(19,210)
Fair value of scheme assets
17,725
2,841
179
–
20,745
Total gross surplus/(deficit)
1,505
(230)
71
(178)
1,168
Withholding tax on surpluses
(400)
–
–
–
(400)
Surplus/(deficit)
1,105
(230)
71
(178)
768
Represented by:
Post-employment benefit surpluses
1,197
3
71
–
1,271
Post-employment benefit obligations
(92)
(233)
–
(178)
(503)
1,105
(230)
71
(178)
768
The US unfunded pension obligations have associated assets held in deferred compensation schemes with a fair value of £62m (2023 £53m),
which are shown in Other Investments. The funds held in these trusts can be used solely for the satisfaction of the unfunded obligations.
2023
Kingdom
UK defined US and of Saudi
benefit other US Arabia end
pension pension healthcare of service
schemes schemes schemes benefit Total
£m £m £m £m £m
2023 scheme assets and obligations as previously presented
1
Present value of unfunded obligations – total for the schemes
(105)
(98)
–
(168)
(371)
Present value of funded obligations – total for the schemes
(19,913)
(2,838)
(125)
–
(22,876)
Fair value of scheme assets – total for the schemes
21,176
2,629
180
–
23,985
Total surplus/(deficit) – total for the schemes
1,158
(307)
55
(168)
738
Withholding tax on surpluses – total for the schemes
(441)
–
–
–
(441)
Allocated to equity accounted investments
(68)
–
–
–
(68)
Group’s share of surplus/(deficit)
649
(307)
55
(168)
229
2023 scheme assets and obligations as re-presented
Present value of unfunded obligations – Group’s share of the schemes
(98)
(98)
–
(168)
(364)
Present value of funded obligations – Group’s share of the schemes
(18,105)
(2,838)
(125)
–
(21,068)
Fair value of scheme assets – Group’s share of the schemes
19,254
2,629
180
–
22,063
Total gross surplus/(deficit) – Group’s share of the schemes
1,051
(307)
55
(168)
631
Withholding tax on surpluses – Group’s share of the schemes
(402)
–
–
–
(402)
Group’s share of surplus/(deficit)
649
(307)
55
(168)
229
Represented by:
Post-employment benefit surpluses
747
2
55
–
804
Post-employment benefit obligations
(98)
(309)
–
(168)
(575)
649
(307)
55
(168)
229
1. 2023 figures have been re-presented to allow for a clearer reconciliation between retirement benefit balances as reported in note 24 and those elsewhere in the
Consolidated financial statements.
189BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
24. Post-employment benefits continued
IAS 19 accounting continued
Changes in the fair value of scheme assets
Kingdom
UK defined US and of Saudi
benefit other US Arabia end
pension pension healthcare of service
schemes schemes schemes benefit Total
£m £m £m £m £m
Value of scheme assets at 1 January 2023
19,614
3,629
190
–
23,433
Interest income
919
170
9
–
1,098
Actual return on assets excluding amounts included in interest income
(603)
124
3
–
(476)
Actual return on assets
316
294
12
–
622
Contributions by employer
245
9
–
13
267
Contributions by employer in respect of employee salary sacrifice arrangements
62
–
–
–
62
Total contributions by employer
307
9
–
13
329
Members’ contributions
4
–
–
–
4
Settlements
–
(894)
–
–
(894)
Administrative expenses
(22)
(15)
(1)
–
(38)
Foreign exchange translation
–
(185)
(11)
–
(196)
Benefits paid
(965)
(209)
(10)
(13)
(1,197)
Value of scheme assets at 31 December 2023
19,254
2,629
180
–
22,063
Interest income
853
135
9
–
997
Actual return on assets excluding amounts included in interest income
(1,628)
(94)
(4)
–
(1,726)
Actual return on assets
(775)
41
5
–
(729)
Contributions by employer
229
156
1
13
399
Contributions by employer in respect of employee salary sacrifice arrangements
61
–
–
–
61
Total contributions by employer
290
156
1
13
460
Members’ contributions
4
–
–
–
4
Settlements
–
(100)
–
–
(100)
Administrative expenses
(15)
(10)
(1)
–
(26)
Business acquisitions
–
253
–
–
253
Foreign exchange translation
–
45
3
–
48
Benefits paid
(1,033)
(173)
(9)
(13)
(1,228)
Value of scheme assets at 31 December 2024
17,725
2,841
179
–
20,745
190
BAE Systems plc  Annual Report 2024
Consolidated financial statements
24. Post-employment benefits continued
IAS 19 accounting continued
Assets of defined benefit pension schemes
2024
UK
US and other
Total
Quoted Unquoted Total Quoted Unquoted Total Quoted Unquoted Total
£m £m £m £m £m £m £m £m £m
Equities:
UK
1
1
–
1
–
–
–
1
–
1
Overseas
97
–
97
–
–
–
97
–
97
Pooled investment vehicles
2
–
6,559
6,559
815
–
815
815
6,559
7, 374
Fixed-interest securities:
UK gilts
2,400
–
2,400
–
–
–
2,400
–
2,400
UK corporates
1,951
1,480
3,431
–
–
–
1,951
1,480
3,431
Overseas government
61
–
61
477
–
477
538
–
538
Overseas corporates
1,891
–
1,891
1,329
–
1,329
3,220
–
3,220
Index-linked securities:
UK gilts
1,959
–
1,959
–
–
–
1,959
–
1,959
UK corporates
580
–
580
–
–
–
580
–
580
Overseas government
–
–
–
–
–
–
–
–
–
Overseas corporates
8
–
8
–
–
–
8
–
8
Property
3
–
1,182
1,182
–
70
70
–
1,252
1,252
Derivatives
4
–
(1,497)
(1,497)
–
11
11
–
(1,486)
(1,486)
Cash:
Sterling
904
40
944
–
–
–
904
40
944
Foreign currency
75
–
75
139
–
139
214
–
214
Other
–
34
34
–
–
–
–
34
34
Total
9,927
7,798
17,725
2,760
81
2,841
12,687
7, 879
20,566
2023
UK
US and other
Total
Quoted Unquoted Total Quoted Unquoted Total Quoted Unquoted Total
£m £m £m £m £m £m £m £m £m
Equities:
UK
1
1
–
1
–
–
–
1
–
1
Overseas
202
–
202
–
–
–
202
–
202
Pooled investment vehicles
2
–
7,0 09
7,0 09
655
–
655
655
7,0 09
7,6
6 4
Fixed-interest securities:
UK gilts
2,144
–
2,144
–
–
–
2,144
–
2,144
UK corporates
2,620
1,600
4,220
–
–
–
2,620
1,600
4,220
Overseas government
32
–
32
595
–
595
627
–
627
Overseas corporates
1,552
–
1,552
1,276
–
1,276
2,828
–
2,828
Index-linked securities:
UK gilts
1,979
–
1,979
–
–
–
1,979
–
1,979
UK corporates
992
–
992
–
–
–
992
–
992
Overseas government
–
–
–
–
–
–
–
–
–
Overseas corporates
39
–
39
–
–
–
39
–
39
Property
3
–
1,316
1,316
–
29
29
–
1,345
1,345
Derivatives
4
–
(1,134)
(1,134)
–
5
5
–
(1,129)
(1,129)
Cash:
Sterling
526
147
673
–
–
–
526
147
673
Foreign currency
222
–
222
69
–
69
291
–
291
Other
–
7
7
–
–
–
–
7
7
Total
10,309
8,945
19,254
2,595
34
2,629
12,904
8,979
21,883
1. Includes £nil (2023 £nil) of the Company’s own ordinary shares.
2. Primarily invested in private markets and exchange traded funds. The amounts classified as unquoted primarily comprise investments in private markets, with the
majority held in infrastructure, alternatives and direct funds, valued in accordance with International Private Equity and Venture Capital Valuation Guidelines.
3. Valued on the basis of open market value at the end of the year determined in accordance with the Royal Institution of Chartered Surveyors’ Appraisal and Valuation
Standards and the Practice Note contained therein. Includes £203m (2023 £233m) of property occupied by Group companies.
4. Includes forward foreign exchange contracts, futures, and interest rate, inflation and longevity swaps. In addition, the total derivative figures shown are net of £512m
(2023 £449m) of repurchase agreements. The valuations are based on valuation techniques using underlying market data and discounted cash flows.
191BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
24. Post-employment benefits continued
IAS 19 accounting continued
Longevity swap
The Group holds longevity insurance contracts for some of its UK defined benefit pension schemes. These provide long-term protection
and income to the underlying pension scheme in the event that insured members live longer than expected.
The value of the longevity insurance contracts held by the Group are calculated by an actuary. They are measured by discounting the
difference between the projected fixed and floating cash flows payable under the contracts, excluding the value of future projected fees.
The significant assumptions used for this valuation are the discount rate and mortality assumptions; fair values for these assumptions are
advised by an actuary based on external data and characteristics of the insured member population.
At 31 December 2024, the longevity swap valuation leads to a negative adjustment to the assets which reflects that experience to date
on the contracts has been higher than expected deaths.
Changes in the present value of the defined benefit obligations
UK defined US and Kingdom of
benefit other US Saudi Arabia
pension pension healthcare end of service
schemes schemes schemes benefit Total
£m £m £m £m £m
Defined benefit obligations at 1 January 2023
(17, 825)
(4,032)
(128)
(142)
(22,127)
Current service cost
(85)
(6)
(2)
(20)
(113)
Contributions by employer in respect of employee salary sacrifice arrangements
(62)
–
–
–
(62)
Total current service cost
(147)
(6)
(2)
(20)
(175)
Members’ contributions
(4)
–
–
–
(4)
Past service cost – plan amendments
–
–
(2)
–
(2)
Settlements
–
954
–
–
954
Actuarial loss due to changes in financial assumptions
(298)
(52)
(4)
(13)
(367)
Actuarial gain/(loss) due to changes in demographic assumptions
34
(1)
–
–
33
Experience losses
(106)
(22)
(1)
(5)
(134)
Interest expense
(822)
(190)
(6)
(8)
(1,026)
Foreign exchange translation
–
204
8
7
219
Benefits paid
965
209
10
13
1,197
Defined benefit obligations at 31 December 2023
(18,203)
(2,936)
(125)
(168)
(21,432)
Current service cost
(76)
(32)
(2)
(24)
(134)
Contributions by employer in respect of employee salary sacrifice arrangements
(61)
–
–
–
(61)
Total current service cost
(137)
(32)
(2)
(24)
(195)
Members’ contributions
(4)
–
–
–
(4)
Settlements
–
113
–
–
113
Actuarial gain due to changes in financial assumptions
1,745
179
4
14
1,942
Actuarial gain/(loss) due to changes in demographic assumptions
46
(19)
12
1
40
Experience gains/(losses)
95
46
2
(5)
138
Interest expense
(795)
(153)
(5)
(8)
(961)
Business acquisitions
–
(400)
–
–
(400)
Foreign exchange translation
–
(42)
(3)
(1)
(46)
Benefits paid
1,033
173
9
13
1,228
Defined benefit obligations at 31 December 2024
(16,220)
(3,071)
(108)
(178)
(19,577)
192
BAE Systems plc  Annual Report 2024
Consolidated financial statements
24. Post-employment benefits continued
IAS 19 accounting continued
Amounts recognised in the Consolidated income statement
2024
Kingdom
UK defined US and of Saudi
benefit other US Arabia end
pension pension healthcare of service
schemes schemes schemes benefit Total
£m £m £m £m £m
Included in operating costs:
Current service cost
(76)
(32)
(2)
(24)
(134)
Administrative expenses
(15)
(10)
(1)
–
(26)
(91)
(42)
(3)
(24)
(160)
Included in other income:
Pensions settlement gain
–
13
–
–
13
Included in net finance costs:
Gross interest income/(expense) on post-employment benefit obligations
58
(18)
4
(8)
36
Impact of withholding tax
(18)
–
–
–
(18)
Net interest income/(expense) on post-employment benefit obligations
40
(18)
4
(8)
18
Included within statement of comprehensive income:
Gross actuarial gain on post-employment benefit schemes
258
112
14
10
394
Impact of withholding tax
20
–
–
–
20
Net actuarial gain on post-employment benefit obligations
278
112
14
10
414
2023
Kingdom
UK defined US and of Saudi
benefit other US Arabia end
pension pension healthcare of service
schemes schemes schemes benefit Total
£m £m £m £m £m
Included in operating costs:
Current service cost
(85)
(6)
(2)
(20)
(113)
Past service cost – plan amendments
–
–
(2)
–
(2)
Administrative expenses
(22)
(15)
(1)
–
(38)
(107)
(21)
(5)
(20)
(153)
Included in other income:
Pensions settlement gain
–
60
–
–
60
Included in net finance costs:
Net interest income/(expense) on post-employment benefit obligations
66
(20)
3
(8)
41
Included within Statement of comprehensive income
Net actuarial gain on post-employment benefit obligations
(687)
49
(2)
(18)
(658)
Defined contribution schemes
The Group incurred a charge of £334m (2023 £309m) in relation to defined contribution schemes for employees.
193
BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
24. Post-employment benefits continued
IAS 19 accounting continued
Sensitivity analysis
The sensitivity information has been derived using scenario analysis from the actuarial assumptions as at 31 December 2024 and keeping
all other assumptions as set out on page 187.
The pension schemes hold a number of unquoted pooled investment vehicles, which are investments in private markets. These are valued
based on latest available valuation reports, and as noted on page 150, these valuations are subject to estimation uncertainty as their
valuation techniques incorporate a number of assumptions, including those associated with the impact of climate change. Should these
funds’ actual valuations at 31 December 2024 be on average 2% different to those assumed, this would result in a £0.1bn (2023 £0.2bn)
change in the valuation of the assets.
Financial assumptions
The estimated impact of changes in the discount rate and inflation assumptions on the defined benefit pension obligation, together with
the estimated impact on scheme assets, is shown in the table below. The sensitivity analysis on the defined benefit obligation is measured
on an IAS 19 accounting basis.
Decrease/(increase) (Decrease)/increase
in pension obligation
1
in scheme assets
1
£bn £bn
Discount rate:
0.5 percentage point increase/decrease
1.0/(1.1)
(1.0)/1.1
1.0 percentage point increase/decrease
1.9/(2.3)
(2.0)/2.3
2.0 percentage point increase/decrease
3.5/(5.2)
(3.6)/5.0
(Increase)/decrease Increase/(decrease)
in pension obligation
1
in scheme assets
1
£bn £bn
Inflation:
0.1 percentage point increase/decrease
(0.1)/0.1
0.1/(0.1)
0.5 percentage point increase/decrease
(0.5)/0.5
0.6/(0.5)
1.0 percentage point increase/decrease
(1.0)/1.0
1.2/(1.0)
Demographic assumptions
Changes in the life expectancy assumption, including the benefit of longevity swap arrangements (see longevity risk on page 186),
would have the following effect on the total net IAS 19 surplus:
(Decrease)/increase
in net surplus
1
£bn
Life expectancy:
One-year increase/decrease
(0.6)/0.6
1. Before deduction of withholding tax.
194 BAE Systems plc  Annual Report 2024
Consolidated financial statements
25. Provisions
A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that
an outflow of economic benefits will be required to settle the obligation and the amount has been reliably estimated. If the effect is
material, provisions are determined by discounting the expected future cash flows at an appropriate pre-tax risk-free discount rate.
Legal, contractual and environmental
The Group holds provisions for expected legal, contractual and environmental costs that it expects to incur over an extended period.
Management exercises judgement to determine the amount of these provisions. Provision is made for known issues based on past
experience of similar items and other known factors. Each provision is considered separately and the amount provided reflects the
best estimate of the most likely amount, being the single most likely amount in a range of possible outcomes.
Warranties and after-sales services
Where warranties and after-sales services are provided in the normal course of business, provisions for associated costs are made based
on an assessment of future claims with reference to past experience. A provision for warranties is recognised when the underlying
products and services are sold. The provision is based on historical warranty data and a weighting of possible outcomes against their
associated probabilities.
Reorganisations
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring
has either commenced or has been announced to those affected. The costs associated with the reorganisation programmes are supported
by detailed plans and based on previous experience as well as other known factors. Future operating costs are not provided for.
Legal, contractual Warranties and
and environmental after-sales services Reorganisations Other Total
£m £m £m £m £m
Non-current
236
55
7
34
332
Current
126
50
11
49
236
At 1 January 2024
362
105
18
83
568
Created
145
49
7
25
226
Utilised
(69)
(29)
(9)
(10)
(117)
Business acquisitions
12
–
–
–
12
Released
(51)
(12)
(2)
(19)
(84)
Net present value adjustments
8
–
–
1
9
Foreign exchange adjustments
3
(1)
–
1
3
At 31 December 2024
410
112
14
81
617
Represented by:
Non-current
260
67
4
32
363
Current
150
45
10
49
254
410
112
14
81
617
Legal, contractual and environmental
Reflecting the inherent uncertainty within many legal proceedings, the amount of the outflows could differ significantly from the amount
provided. While the timing of the outflows is also uncertain, the Group expects these provisions to be utilised over a period of approximately
25 years.
Warranties and after-sales services
Warranty and after-sales services provisions are generally utilised within three years post-delivery. Whilst actual events could result in
potentially significant differences to the value, but not the timing, of the outflows in relation to the provisions, management has reflected
current knowledge in assessing the provision levels.
Reorganisations
Reorganisation provisions are generally utilised within one to three years. There is limited volatility around the timing and amount of
the ultimate outflows related to these provisions.
Other
There are no individually significant provisions included within other provisions.
195
BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
26. Share capital and other reserves
Share capital
Equity
Non-equity
Total
Ordinary shares of 2.5p each
Special Share of £1
Number of Nominal Number of Nominal Nominal
shares value shares value value
m £m £ £m
Issued and fully paid
At 1 January 2023
3,297
82
1
1
82
Shares cancelled
(58)
(1)
–
–
(1)
At 31 December 2023
3,239
81
1
1
81
Shares cancelled
(44)
(1)
–
–
(1)
At 31 December 2024
3,195
80
1
1
80
Special Share
One Special Share of £1 in the Company is held on behalf of the Secretary of State for Business and Trade (the Special Shareholder). Certain
provisions of the Company’s Articles of Association cannot be amended without the consent of the Special Shareholder. These provisions
include the requirement that no foreign person, or foreign persons acting in concert, can have more than a 15% voting interest in the Company,
the requirement that the majority of the directors are British, and the requirement that the Chief Executive or any executive Chair are British.
The effect of these requirements can also be amended by regulations made by the directors and approved by the Special Shareholder.
The Special Shareholder may require the Company at any time to redeem the Special Share at par or to convert the Special Share into one
ordinary voting share. The Special Shareholder is entitled to attend a general meeting, but has no right to vote or any other rights at such
meeting, other than to speak in relation to any business in respect of the Special Share.
Treasury shares
As at 31 December 2024, 183,673,739 (2023 204,041,705) ordinary shares of 2.5p each with an aggregate nominal value of £4,591,843
(2023 £5,101,043) and a market value of £2,109m (2023 £2,266m) were held in treasury. During 2024, 20,367,966 (2023 16,045,254) treasury
shares were used to satisfy awards and options under the Share Incentive Plan, International Share Incentive Plan, Performance Share Plan,
the Performance Shares and Restricted Shares elements of the Long-Term Incentive Plan, the Executive Share Option Plan, the Group Free
Shares Plan and the International Profit Sharing Scheme.
Shares held in trusts
The Group has an Employee Share Option (ESOP) discretionary trust to administer the share plans and to acquire Company shares, using funds
loaned by the Group, to meet commitments to Group employees. At 31 December 2024, the ESOP Trust held 8,172,124 (2023 8,665,966)
ordinary shares of 2.5p each, with an aggregate nominal value of £204,303 (2023 £216,649) and a market value of £94m (2023 £96m).
The Group also has a Share Incentive Plan (SIP) trust. Participating employees are able to purchase Partnership shares, funded via salary
sacrifice, and also benefit from Free Shares and Matching Partnership Shares. At 31 December 2024, the SIP trust held 74,600,040
(2023 78,757,512) ordinary shares of 2.5p each with an aggregate nominal value of £1,865,001 (2023 £1,968,938) and a market value
of £857m (2023 £875m).
A dividend waiver was also in operation for the dividends paid in the year over shares within the trusts, other than those shares owned
beneficially by the participants or where the dividend payment is used to purchase dividend shares.
Shares which are unconditionally available to employees, but are retained within these trusts, are considered outstanding shares for the
purposes of the basic earnings per share calculation. Contingently issuable shares are included within the calculation of diluted earnings
per share (see note 8).
Own shares held
Own shares held, including treasury shares and shares held by BAE Systems ESOP and SIP Trusts, are recognised as a deduction from
retained earnings.
196
BAE Systems plc  Annual Report 2024
Consolidated financial statements
26. Share capital and other reserves continued
Equity dividends
Equity dividends on ordinary share capital are recognised as a liability on the date that the shareholder’s right to receive payment
is established.
2024 2023
£m £m
Final 18.5p dividend per ordinary share paid in the year (2023 16.6p)
562
508
Interim 12.4p dividend per ordinary share paid in the year (2023 11.5p)
375
349
937
857
After the balance sheet date, the directors proposed a final dividend of 20 .6p per ordinary share. The dividend proposed amounts
to approximately £622m, although the final payment is likely to be lower as a result of the impact of share repurchases. Subject to
shareholder approval, the dividend will be paid on 2 June 2025 to shareholders registered on 22 April 2025. The provisional ex-dividend
date is 17 April 2025. The payment of this dividend will not have any tax expense consequences for the Group.
Other reserves
Capital
Merger Statutory Revaluation redemption Hedging Translation
reserve reserve reserve reserve reserve reserve Total
£m £m £m £m £m £m £m
At 1 January 2023
4,589
202
10
8
(11)
2,153
6,951
Subsidiaries:
Currency translation on foreign currency net investments
–
–
–
–
–
(502)
(502)
Net amounts recognised in hedging reserve
–
–
–
–
(58)
–
(58)
Equity accounted investments (net of tax)
–
–
–
–
5
6
11
Purchase of own shares
–
–
–
1
–
–
1
At 31 December 2023
4,589
202
10
9
(64)
1,657
6,403
Subsidiaries:
Currency translation on foreign currency net investments
–
–
–
–
–
5
5
Reclassification of cumulative currency translation reserve
on divestment of interest in equity accounted investments
and other business disposals
–
–
–
–
–
3
3
Net amounts recognised in hedging reserve
–
–
–
–
31
–
31
Equity accounted investments (net of tax)
–
–
–
–
1
3
4
Purchase of own shares
–
–
–
1
–
–
1
At 31 December 2024
4,589
202
10
10
(32)
1,668
6,447
197
BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
26. Share capital and other reserves continued
Other reserves continued
Merger reserve
The merger reserve arose on the acquisition of the Marconi Electronic Systems (MES) business by British Aerospace in 1999 to form BAE Systems,
and represents the amount by which the fair value of the shares issued by British Aerospace as consideration exceeded their nominal value.
Statutory reserve
Under Section 4 of the British Aerospace Act 1980, this reserve may only be applied in paying up unissued shares of the Company to be allotted
to members of the Company as fully paid bonus shares.
Revaluation reserve
The revaluation reserve relates to the revaluation at fair value of the net assets of the BVT joint venture previously held as an equity accounted
investment on the acquisition of the remaining 45% interest in 2009.
Capital redemption reserve
The capital redemption reserve represents the cumulative nominal value of the Company’s ordinary shares repurchased and subsequently cancelled.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related
to hedged transactions that have not yet occurred.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
Capital
The Group funds its operations through a mixture of equity funding and debt financing, including bank and capital market borrowings.
At 31 December 2024, the Group’s capital was £11,809m (2023 £10,787m), which comprised total equity of £11,777m (2023 £10,723m),
excluding amounts accumulated in equity relating to cash flow hedges of £(32)m (2023 £(64)m). Net debt (excluding lease liabilities) was
£4,945m (2023 £1,022m).
The capital structure of the Group reflects the judgement of the directors of an appropriate balance of funding required. The Group’s policy
is to maintain an investment grade credit rating and ensure operating flexibility, whilst:
– meeting its pension obligations;
– investing in research and technology and pursuing other organic investment opportunities;
– paying dividends in line with the Group’s policy of long-term sustainable cover of around two times underlying earnings (see page 221);
– making accelerated returns of capital to shareholders when the balance sheet allows and when the return from doing so is in excess
of the Group’s Weighted Average Cost of Capital; and
– investing in value-enhancing acquisitions, where market conditions are right and where they deliver on the Group’s strategy.
Purchase of own shares
In July 2022, the directors approved a share buyback programme of up to £1.5bn (the 2022 share buyback programme). The 2022 share
buyback programme was completed on 24 July 2024. In total, 163,907,003 ordinary shares were repurchased under the 2022 share buyback
programme for a total cost (including transaction costs) of £1,508m.
In August 2023, the directors approved a further share buyback programme of up to £1.5bn (the 2023 share buyback programme). The 2023
share buyback programme commenced on 25 July 2024. The 2023 share buyback programme is expected to complete within three years of
its commencement.
In the year ended 31 December 2023, 58,689,756 ordinary shares were repurchased under the 2022 share buyback programme for a total
cost (including transaction costs) of £558m.
In the year ended 31 December 2024, 22,220,182 ordinary shares were repurchased under the 2022 share buyback programme at a total cost
(including transaction costs) of £287m. A further 20,901,154 ordinary shares were repurchased under the 2023 share buyback programme at
a total cost (including transaction costs) of £264m.
All ordinary shares acquired have been subsequently cancelled, with the nominal value of ordinary shares cancelled deducted from share
capital against the capital redemption reserve.
As part of the 2022 and 2023 buyback programmes, it was agreed that should a better alternative use for the Company’s cash reserves
be identified, the share buyback programmes would be ceased and the money instead used for the alternative purpose. Therefore, when
the Company issued a mandate to the brokers to purchase shares on its behalf, the mandate was structured such that it could be revoked
at any point. As such, no financial liability has been recognised for shares not yet purchased under the programmes at 31 December.
198
BAE Systems plc  Annual Report 2024
Consolidated financial statements
27. Movement in assets and liabilities arising from financing activities
Non-cash movements
As at Foreign Net As at
1 January exchange Fair value finance Business 31 December
2024
Cash flow
1
movements Leases adjustments costs acquisitions 2024
£m £m £m £m £m £m £m £m
Assets
Other financial assets
2
143
(143)
–
–
155
7
–
162
143
(143)
–
–
155
7
–
162
Liabilities
Loans
(5,111)
(2,828)
(106)
–
–
(367)
–
(8,412)
Lease liabilities
(1,420)
262
(17)
(532)
–
(73)
(61)
(1,841)
Other financial liabilities
2
(168)
292
–
–
(161)
(26)
–
(63)
(6,699)
(2,274)
(123)
(532)
(161)
(466)
(61)
(10,316)
(2,417)
Other interest paid
141
Purchase of own shares
555
Equity dividends paid
937
Dividends paid to non-controlling interests
89
Net cash flow from financing activities
(695)
Non-cash movements
As at Foreign Net As at
1 January exchange Fair value finance Business 31 December
2023
Cash flow
1
movements Leases adjustments costs acquisitions 2023
£m £m £m £m £m £m £m £m
Assets
Other financial assets
2
170
(200)
–
–
166
7
–
143
170
(200)
–
–
166
7
–
143
Liabilities
Loans
(5,242)
35
299
–
–
(203)
–
(5,111)
Lease liabilities
(1,616)
346
60
(157)
–
(53)
–
(1,420)
Other financial liabilities
2
(114)
406
–
–
(441)
(19)
–
(168)
(6,972)
787
359
(157)
(441)
(275)
–
(6,699)
587
Other interest paid
95
Purchase of own shares
561
Equity dividends paid
857
Dividends paid to non-controlling interests
88
Net cash flow from financing activities
2,188
1. Cash flow movements represent both payments or receipts of principal and payments of interest, which are presented separately in the Consolidated cash flow statement.
2. Excluding cash flow hedges, for which the cash flow is reported in line with the underlying transaction. See note 15 for an analysis of other financial assets and liabilities.
199BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
28. Fair value measurement
Fair value of financial instruments
Certain of the Group’s financial instruments are held at fair value.
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the balance sheet date.
The fair values of financial instruments held at fair value have been determined based on available market information at the balance sheet
date, and the valuation methodologies listed below:
– the fair values of forward foreign exchange contracts are calculated by discounting the contracted forward values and translating at the
appropriate balance sheet rates;
– the fair values of both interest rate and cross-currency swaps are calculated by discounting expected future principal and interest cash flows
and translating at the appropriate balance sheet rates; and
– the fair values of money market funds are calculated by multiplying the net asset value per share by the investment held at the balance
sheet date.
The derivative fair values are based on reputable third-party forecast data, and then adjusted for credit risk, including the Group’s own credit
risk, and market risk.
Due to the variability of the valuation factors, the fair values presented at 31 December may not be indicative of the amounts the Group will
realise in the future.
Fair value hierarchy
The fair value measurement hierarchy is as follows:
– Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
– Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
– Level 3 – Inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).
Carrying amounts and fair values of certain financial instruments
2024
2023
Carrying Fair Carrying Fair
amount value amount value
Note £m £m £m £m
Financial instruments measured at fair value:
Non-current
Other investments at fair value through other comprehensive income
83
83
84
84
Other financial assets
15
265
265
227
227
Contingent consideration arising from business combinations
(65)
(65)
–
–
Other financial liabilities
15
(193)
(193)
(227)
(227)
Current
Other financial assets
15
212
212
205
205
Money market funds
19
1,227
1,227
1,375
1,375
Contingent consideration arising from business combinations
(6)
(6)
–
–
Other financial liabilities
15
(264)
(264)
(295)
(295)
Financial instruments not measured at fair value:
Non-current
Loans
21
(7,713)
(7,261)
(4,432)
(4,045)
Current
Loans
21
(699)
(695)
(679)
(672)
All of the financial assets and liabilities measured at fair value are classified as level 2 using the fair value hierarchy, except for money market
funds, which are classified as level 1; other investments, which are at a combination of level 1 and level 3; and the contingent consideration
liability which is measured at level 3. The fair value of the contingent consideration has been valued based on the discounted expected cash
flows. The total value of investments classified as level 3 is immaterial. There were no transfers between levels during the period. Alternative
valuation techniques would not materially change the valuations presented.
Financial assets and liabilities in the Group’s Consolidated balance sheet are either held at fair value or at amortised cost. With the exception
of loans, the carrying value of financial instruments measured at amortised cost approximates their fair value. For the bonds included within
loans the fair value of loans presented in the table above is derived from market prices as of 31 December, classified as level 1 using the fair
value hierarchy. The fair value of the private placement included within loans has been valued based on the interest yield on an equivalent
observable bond, applied to the private placement cash flows, and has been classified as level 2 using the fair value hierarchy.
200
BAE Systems plc  Annual Report 2024
Consolidated financial statements
29. Share-based payments
The Group has granted equity-settled share options and Long-Term Incentive Plan arrangements which are measured at fair value at the
date of grant using an option pricing model. The fair value is expensed on a straight-line basis over the vesting period, based on the Group’s
estimate of the number of shares that will actually vest.
Details of the terms and conditions of each share-based payment plan are given in the Annual remuneration report on pages 109 to 125.
Expense in year
2024 2023
£m £m
Executive Share Option Plan
4
8
Performance Share Plan
75
43
Restricted Share Plan
14
12
93
63
The Group also incurred a charge of £51m (2023 £47m) in respect of the equity-settled all-employee Free Shares and Matching Partnership
Shares elements of the Share Incentive Plan.
Executive Share Option Plan
2024
2023
Weighted Weighted
average average
Number of exercise Number of exercise
shares price shares price
’000 £ ’000 £
Outstanding at 1 January
24,422
5.78
34,814
5.58
Exercised during the year
(10,262)
5.07
(9,380)
5.01
Expired during the year
(722)
6.81
(1,012)
6.10
Outstanding at 31 December
13,438
6.27
24,422
5.78
Exercisable at 31 December
6,767
5.18
8,284
5.21
2024
2023
Range of exercise price of outstanding options (£)
4.38 – 7.83
4.12 – 7.83
Weighted average remaining contracted life (years)
6
7
Performance Share Plan and Restricted Share Plan
Performance Share Plan
Restricted Share Plan
2024 2023 2024 2023
Number of Number of Number of Number of
shares shares shares shares
’000 ’000 ’000 ’000
Outstanding at 1 January
33,005
27,343
5,581
5,805
Granted during the year
8,475
10,897
1,214
1,705
Exercised during the year
(7,132)
(4,293)
(1,789)
(1,688)
Expired during the year
(1,965)
(942)
(231)
(241)
Outstanding at 31 December
32,383
33,005
4,775
5,581
Exercisable at 31 December
953
1,508
271
108
2024
2023
2024
2023
Weighted average remaining contracted life (years)
5
5
5
5
Weighted average fair value of awards granted (£)
13.27
9.73
13.31
9.78
The exercise price for the Performance Share Plan and Restricted Share Plan is £nil (2023 £nil).
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Notes to the Consolidated financial statements continued
29. Share-based payments continued
Details of options/awards granted in the year
The fair value of equity-settled options/awards granted in the year has been measured using the weighted average inputs below and the
following valuation models:
Executive Share Option Plan – Binomial
Performance Share Plan – Monte Carlo
Restricted Share Plan – Dividend valuation
2024
2023
Range of share price at date of grant (£)
9.75 – 13.36
9.75 – 10.14
Expected option/award life (years)
3 – 7
3 – 7
Volatility (%)
22
31
Risk-free interest rate (%)
4
3 – 4
Volatility was calculated with reference to the Group’s weekly share price volatility, after allowing for dividends, for the greater of 30 weeks
or for the period until vest date.
The average share price in the year was £12.85 (2023 £9.77).
30. Related party transactions
The Group has a related party relationship with its directors and key management personnel (see below), equity accounted investments
(note 13) and pension schemes (note 24).
Transactions with related parties occur in the normal course of business, are priced on an arm’s-length basis and settled on normal trade
terms. The more significant transactions are disclosed below:
Sales to Purchases from Amounts owed by Amounts owed to Management
related parties related parties related parties
related parties
1
recharges
1
2024 2023 2024 2023 2024 2023 2024 2023 2024 2023
Related party £m £m £m £m £m £m £m £m £m £m
Eurofighter Jagdflugzeug GmbH
1,383
1,377
291
303
22
32
163
116
–
–
FADEC International LLC
131
118
–
–
19
26
–
–
–
–
MBDA SAS
23
15
127
258
2
2
1,807
1,390
3
8
Panavia Aircraft GmbH
34
33
35
38
3
1
–
1
–
–
BAE Systems Pension Schemes
–
–
18
24
–
–
187
202
–
–
Other
135
143
41
35
8
18
35
37
–
–
1,706
1,686
512
658
54
79
2,192
1,746
3
8
1. Also relates to disclosures under IAS 24 Related Party Disclosures, for the parent company, BAE Systems plc. At 31 December 2024, £1,975m (2023 £1,509m) was owed
by BAE Systems plc and £217m (2023 £237m) by other Group subsidiaries.
The Group also manages certain treasury functions on behalf of some of their equity accounted investments. This includes entering into
foreign exchange derivatives on their behalf. In 2024, we entered into forward contracts to purchase €551m, purchase $123m and purchase
£29m worth of other currencies (2023 purchase €297m, purchase $47m and purchase £12m worth of other currencies) on their behalf.
No service fee is charged for these arrangements. In addition, £8m of finance lease receivables in note 15 relates to amounts owed from MBDA.
The Group considers key management personnel, as defined under IAS 24 Related Party Disclosures, to be the members of the Group’s
Executive Committee and the Company’s non-executive directors. Fuller disclosures on directors’ remuneration are set out in the Annual
remuneration report on pages 109 to 125. Total emoluments for directors and key management personnel charged to the Consolidated
income statement were:
2024 2023
£’000 £’000
Short-term employee benefits
21,155
22,146
Post-employment benefits
1,279
1,534
Share-based payments
15,724
15,655
Termination benefits
596
–
38,754
39,335
31. Contingent liabilities
Contingent liabilities are potential future cash outflows which are either not probable or cannot be measured reliably.
The Group has entered into a number of guarantee and performance bond arrangements in the normal course of business. Various
Group undertakings are parties to legal actions and claims which arise in the normal course of business. Provision is made for any
amounts that the directors consider may become payable (see note 25).
The Group believes that the likelihood of any significant liability arising in respect of its guarantees and performance bond arrangements,
and legal actions and claims not already provided for, is remote.
202
BAE Systems plc  Annual Report 2024
Consolidated financial statements
32. Acquisition of businesses
The results and financial position of the acquired business are consolidated from the date of acquisition under the requirements of IFRS 3
Business Combinations. The Group recognises and measures the acquiree’s identifiable assets acquired and liabilities assumed at their
acquisition-date fair values. Where the consideration paid exceeds the fair value of the assets purchased then goodwill arises and will be
disclosed in the Consolidated balance sheet.
Businesses acquired during 2024
Ball Aerospace
On 16 February 2024, the Group acquired 100% of the share capital of the Ball Aerospace division (now BAE Systems Space & Mission
Systems) for consideration of $5.5bn (£4.4bn), of which c.$0.8bn is expected to be recoverable under a tax benefit associated with the
acquisition. Upon completion, the Group drew down $4.0bn (£3.2bn) under a bridge loan facility and paid $1.5bn (£1.2bn) in cash from
the Group’s existing cash resources, in settlement of the transaction. In March 2024, the Group raised $4.8bn (£3.8bn) by way of bond
issuance and subsequently repaid the bridge loan facility.
Space & Mission Systems is a leading provider of spacecraft, mission payloads, optical systems and antenna systems. Headquartered in
Colorado, with more than 5,200 employees, it has existing customer relationships among the Intelligence Community, US Department of
Defense and civilian space agencies. It is well positioned across several markets: military and civil space, C4ISR, and missile and munitions.
The space market exposure extends across positions in defence, intelligence and scientific missions. The Tactical Solutions business is well
positioned to capture expected increases in demand for missiles and munitions.
The acquisition enhances our portfolio of advanced defence electronic solutions and is reported as part of our Electronic Systems segment.
Kirintec
On 3 September 2024, the Group acquired 100% of the share capital of Kirintec Ltd for total consideration of £282m, including £30m of
contingent consideration. Kirintec undertakes cyber and electromagnetic activities alongside the production of counter-improvised explosive
devices and counter-unmanned aerial vehicle products for military customers. The acquisition of Kirintec enhances our electronic warfare
capabilities and forms part of the Digital Intelligence business within the Cyber & Intelligence segment.
Other acquisitions
On 31 January 2024, the Group acquired 100% of the share capital of Malloy Aeronautics Ltd and, on 2 May 2024, the Group acquired
100% of the share capital of Callen-Lenz Associates Ltd. Both entities operate in the UAS technology market and form part of FalconWorks®,
the research and development business within the Air segment.
Total consideration of £292m includes £61m of contingent consideration. The value of contingent consideration is dependent on a number
of factors, including the financial and operational performance of the acquired businesses.
Acquisition consideration and provisional fair value of net assets acquired
Ball
Aerospace
1
Kirintec
2
Other
1
Total
£m £m £m £m
Intangible assets
2,270
127
104
2,501
Property, plant and equipment
690
3
1
694
Right-of-use assets
77
–
–
77
Receivables
310
5
13
328
Deferred tax assets
44
–
–
44
Inventories
17
10
4
31
Lease liabilities
(61)
–
–
(61)
Post-employment benefit obligations
(147)
–
–
(147)
Contract liabilities
(186)
–
(17)
(203)
Payables
(164)
(9)
(10)
(183)
Deferred tax liabilities
–
(17)
(26)
(43)
Provisions
(12)
–
–
(12)
Current tax
–
2
–
2
Cash and cash equivalents
7
40
39
86
Net identifiable assets acquired
2,845
161
108
3,114
Goodwill
1,507
121
184
1,812
Net assets acquired
4,352
282
292
4,926
Satisfied by:
Cash consideration
4,352
252
231
4,835
Contingent consideration
–
30
61
91
Total consideration
4,352
282
292
4,926
1. Final fair values.
2. Provisional fair values being the best estimate currently available.
203BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
32. Acquisition of businesses continued
The net outflows of cash in respect of the acquisitions are as follows:
Ball
Aerospace Kirintec Other Total
£m £m £m £m
Cash consideration
4,352
252
231
4,835
Contingent consideration paid in the year in respect of acquisitions
–
–
27
27
Less: Cash and cash equivalents acquired
(7)
(40)
(39)
(86)
Net cash outflow in respect of acquisitions
4,345
212
219
4,776
The goodwill recognised is primarily attributable to expected synergies from the products and services being provided and the enhancement
of capabilities in new and emerging areas of technology. Goodwill of £1,507m is expected to be deductible for tax purposes. No impairment
losses have been recognised in respect of goodwill in the year ended 31 December 2024.
The acquisitions contributed £1,537m to the Group’s revenue and £195m to the Group’s underlying EBIT
1
between the date of acquisition
and 31 December 2024. If the acquisitions had completed on 1 January 2024, the Group’s revenue would have been £26,588m and the
Group’s underlying EBIT
1
would have been £3,050m for the year ended 31 December 2024.
Contractual cash flows on trade, other and contract receivables are recognised net of expected credit losses. The amount of gross receivables
acquired was £340m. Management’s best estimate at the acquisition date of contractual cash flows not expected to be collected was £1m in
relation to trade receivables and £11m related to other receivables, both in relation to Ball Aerospace. The fair value of receivables at acquisition
date is shown in the table above.
No contingent liabilities have been recognised or require disclosure in respect of these acquisitions.
Acquisition-related costs of £51m have been included as an adjusting item in operating costs in the Consolidated income statement for the
year ended 31 December 2024.
1. Underlying EBIT is an alternative performance measure defined in the Alternative performance measures section on page 220. It is presented here as our internal
measure of segmental performance, to provide additional information on performance to the user.
Businesses acquired during 2023
Eurostep acquisition
On 31 October 2023, the Group acquired 100% of the share capital of Eurostep, a secure data sharing company headquartered in Sweden,
for consideration of £9m. The company forms part of the Cyber & Intelligence segment, within the Digital Intelligence business.
The results and financial position of the acquired businesses have been consolidated from the date of acquisition.
204
BAE Systems plc  Annual Report 2024
Consolidated financial statements
33. Business disposals
Business disposals during 2024
On 31 October 2024, the Group completed the sale of BAE Systems Imaging Solutions Inc., previously reported within the Electronic Systems
segment, and, on 31 December 2024, the Group completed the sale of its forge facilities and related services which formed the Anniston
business within the Platforms & Services segment. Total net cash proceeds from the disposals were £8m and, after accounting for disposal
costs and cumulative currency translation, the loss on the disposals before tax totalled £4m.
Disposal of interests in equity accounted investments in 2024
Air Astana
On 12 January 2024, Air Astana announced its intention to proceed with a joint initial public offering (IPO) on the London Stock Exchange,
the Astana International Exchange in Kazakhstan, and the Kazakhstan Stock Exchange. On 9 February 2024, the IPO was launched. As a result
of the IPO, the total shareholding held by BAE Systems in Air Astana reduced from 49% to 17%. The Group’s 49% shareholding in Air Astana
had a carrying value of £84m at 31 December 2023. The profit on disposal of the share of the Group’s equity accounted investment is shown
below. The Group has continued to equity account for the remaining investment within the HQ segment.
FNSS
On 10 December 2024, the Group sold its 49% shareholding in FNSS Savunma Sistemleri A.S¸. FNSS was included in the Platforms & Services
segment. The profit recognised on disposal of the Group’s equity accounted investment is shown below:
Air Astana FNSS Total
£m £m £m
Total cash proceeds on divestment of interest in equity accounted investments
166
20
186
Less: Carrying amount of share of equity accounted investment disposed
(56)
–
(56)
Profit on disposal before tax and reclassification of foreign currency translation reserve
110
20
130
Reclassification of foreign currency reserve
(35)
3
(32)
Profit on disposal before tax
75
23
98
Business disposals during 2023
There were no business disposals in 2023. The Group incurred cash outflows of £8m in 2023 relating to the 2022 disposal of the financial
crime detection business from Digital Intelligence, which had been fully provided for in 2022.
34. Events after the reporting period
There were no events after the reporting period which would materially impact the balances reported in this Report.
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Notes to the Consolidated financial statements continued
35. Information about related undertakings
In accordance with Section 409 of the Companies Act 2006, a full list of subsidiaries, joint ventures, associated undertakings, and
significant holdings in undertakings other than subsidiary undertakings of the Group at 31 December 2024 is disclosed below. All
subsidiary undertakings are subsidiary undertakings of their immediate parent undertaking(s) pursuant to section 1162 (2) (a) of the
Companies Act 2006 unless otherwise indicated. Unless otherwise stated, the aggregate percentage of capital held by the Group is
100%, the Group’s shareholding represents ordinary shares of equal value and voting rights held indirectly by BAE Systems plc,
the year end is 31 December, the country of incorporation is the United Kingdom and the address of the registered office is Victory Point,
Lyon Way, Frimley, Camberley, Surrey GU16 7EX, United Kingdom. For companies incorporated outside of the United Kingdom, the country
of incorporation is shown in the address. No subsidiary undertakings have been excluded from the consolidation.
Subsidiary undertakings – wholly-owned
Aircraft Research Association Limited
1
Manton Lane, Bedford MK41 7PF, United Kingdom
Alvis Limited
Alvis Pension Scheme Trustees Limited
2
Alvis Vickers Limited
Armstrong Whitworth Aircraft Limited
2
ASC Shipbuilding Pty Limited
Bldg 01, Level 2, 640 Mersey Road North, Osborne SA 5017,
Australia
Australian Marine Engineering Corporation (Finance)
Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
Avro International Aerospace Limited
2
BAE Systems (Al Diriyah C4i) Limited
2
BAE Systems (Canada) Inc.
220 Laurier Avenue West, Suite 1200, Ottawa ON K1P 5Z9,
Canada
BAE Systems (Corporate Air Travel) Limited
BAE Systems (Defence Systems) Limited
BAE Systems (Dynamics) Limited
BAE Systems (Farnborough 3) Limited
BAE Systems (Finance) Limited
BAE Systems (Funding Four) Unlimited Company
3
Riverside One, Sir John Rogerson’s Quay, Dublin D02 X576,
Ireland
BAE Systems (Funding Three) Limited
BAE Systems (Funding Two) Limited
BAE Systems (Gripen Overseas) Limited
BAE Systems (Holdings) Limited
2
BAE Systems (International) Limited
BAE Systems (Kazakhstan) Limited
BAE Systems (Land and Sea Systems) Limited
4
BAE Systems (Malaysia) Sdn Bhd
Level 25 Menara Hong Leong, No. 6 Jalan Damanlela,
Bukit Damansara, 50490 Kuala Lumpur, Malaysia
BAE Systems (MEH) Limited
BAE Systems (Military Air) Overseas Limited
BAE Systems (Nominees) Limited
2
BAE Systems (Oman) Limited
BAE Systems (Operations) Limited
5
BAE Systems (Operations) Singapore Pte Limited
One Marina Boulevard #28-00, Singapore, 018989
BAE Systems (Overseas Holdings) Limited
BAE Systems (Poland) Sp. z o.o.
ul. Abp. A. Baraniaka 88, 61-131 Poznan, Poland
BAE Systems (Projects) Limited
BAE Systems (Property Investments) Limited
BAE Systems 2000 Pension Plan Trustees Limited
2
BAE Systems AB
6
Box 5676, SE-114 86 Stockholm, Sweden
BAE Systems Air Japan KK
1-1 Katamachi, Shinjuku-ku, Tokyo, Japan
BAE Systems Applied Intelligence (Asia Pacific)
Pte Limited
101 Thomson Road, # 07–03/07, United Square,
Singapore, 307591
BAE Systems Applied Intelligence (Connect) A/S
c/o Intertrust, (Denmark) Aps, Sundkrogsgade 21,
2100 Kobenhavn O., Denmark
BAE Systems Applied Intelligence (International)
Limited
Priestley Road, Surrey Research Park, Guildford, Surrey
GU2 7RQ, United Kingdom
BAE Systems Applied Intelligence (Integration)
Limited
7
BAE Systems Applied Intelligence (Japan) KK
24/F Ark Mori Building, 12-32 Akasaka, 1 Chome,
Minato-Ku Tokyo, Japan
BAE Systems Applied Intelligence A/S
c/o Intertrust, (Denmark) Aps, Sundkrogsgade 21,
2100 Kobenhavn O., Denmark
BAE Systems Applied Intelligence GCS Inc.
800 Towers Crescent Drive, 13th Floor #1382, Vienna,
VA 22182, United States
BAE Systems Applied Intelligence Integrated
Computer Solutions (Kuwait) (S.P.C.)
Al Hamra Tower, Office Number 3503, 35th Floor,
East Maqwa, Kuwait City, Kuwait
BAE Systems Applied Intelligence Limited
Surrey Research Park, Guildford, Surrey GU2 7RQ,
United Kingdom
BAE Systems Applied Intelligence LLC
8
8000 Towers Crescent Blvd, 13th Floor, Vienna, VA 22182,
United States
BAE Systems Applied Intelligence Malaysia Sdn Bhd
Level 25, Menara Hong Leong, No. 6 Jalan Damanlela, Bukit
Damansara, 50490 Kuala Lumpur, Malaysia
BAE Systems Australia (Electronic Systems) Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Australia (NSW) Holdings Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Australia (NSW) Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Australia Datagate Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Australia Defence Holdings Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Australia Defence Pty Limited
9
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Australia Holdings Limited
2
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Australia Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Australia Logistics Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Australia Sea Sentinel Project Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Avionics Singapore Pte Limited
One Marina Boulevard, #28-00, Singapore, 018989,
Singapore
BAE Systems Bofors AB
SE-691 80 Karlskoga, Sweden
BAE Systems Bofors Holdings Sdn Bhd
Level 21, Suite 21.01, The Gardens South Tower, Mid Valley
City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia
BAE Systems C-ITS AB
Repslagaregatan 25, Linkoping SE-58222, Sweden
BAE Systems Communications Solutions LLC
8
Knowledge Oasis, Building 4, Second Floor, 0402-Z427,
Knowledge Oasis Muscat, PO Box 16, Postal Code 135,
Muscat, Oman
BAE Systems Controls Inc.
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Creole Inc.
10
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Deployed Systems Limited
11
BAE Systems Digital Intelligence (Spain) S.A.
Paseo de la Castellana, 141, Cuzco IV, 28046 Madrid, Spain
BAE Systems Digital Intelligence Pty Limited
Level 26, 459 Collins Street, Melbourne VIC 3000, Australia
BAE Systems do Brasil Ltda
SCN Quadra 5 Bloco A, Ed. Brasilia Shopping, Torre Norte,
Sala 426, Brasilia, DF CEP:70715-900, Brazil
BAE Systems Electronic Systems (Overseas) Limited
BAE Systems Electronics Limited
BAE Systems Enterprises Limited
BAE Systems Executive Pension Scheme Trustees
Limited
2
BAE Systems Finance Inc.
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Flight Training (Australia) Pty Limited
12
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
BAE Systems Funds Management
2,3,7
BAE Systems GCS International Limited
BAE Systems Global Combat Systems Munitions
Limited
BAE Systems Global LLC
8
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Hägglunds AB
Bjornavagen 2, Ornskoldsvik SE-89182, Sweden
BAE Systems Hawaii Shipyards Inc.
3049 Ualena Street, Suite 915, Honolulu, HI 96819,
United States
206 BAE Systems plc  Annual Report 2024
Consolidated financial statements
35. Information about related undertakings continued
Subsidiary undertakings – wholly-owned continued
BAE Systems Holding GmbH
Hauptstrasse 48, 82433 Bad Kohlgrub, Germany
BAE Systems Holdings (South Africa) (Pty) Limited
13
Central Office Park No. 5, 257 Jean Avenue, Centurion,
Gauteng, 0157, South Africa
BAE Systems Holdings B.V.
13
c/o IQ-EQ, Hoogoorddreef 15, 1101 BA Amsterdam,
Netherlands
BAE Systems Holdings Inc.
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Holdings International LLC
8
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems India (Homeland Security)
Private Limited
14
#201, 2nd Floor, World Mark 2, Asset No. 8, Aerocity, NH-8,
New Delhi – 110037, India
BAE Systems India (Services) Private Limited
14
#201, 2nd Floor, World Mark 2, Asset No. 8, Aerocity, NH-8,
New Delhi – 110037, India
BAE Systems India (Technology) Private Limited
14
#201, 2nd Floor, World Mark 2, Asset No. 8, Aerocity, NH-8,
New Delhi – 110037, India
BAE Systems India (Ventures) Private Limited
14
#201, 2nd Floor, World Mark 2, Asset No. 8, Aerocity, NH-8,
New Delhi – 110037, India
BAE Systems Information and Electronic Systems
Integration Inc.
65 Spit Brook Road, Nashua, NH 03061, United States
BAE Systems Insurance (Isle of Man) Limited
Tower House, Loch Promenade, Douglas, IM1 2LZ, Isle of Man
BAE Systems Integrated System Technologies
(KSA) Limited
BAE Systems Integrated System Technologies
(Overseas) Limited
BAE Systems Integrated System Technologies Limited
BAE Systems International Inc.
65 Spit Brook Road, Nashua, NH 03061, United States
BAE Systems Jacksonville Ship Repair LLC
8
8500 Hecksher Drive, Jacksonville, FL 32226, United States
BAE Systems Japan GK
Ark Mori Building, 1-12-32 Akasaka, Minato-Ku, Tokyo,
Japan
BAE Systems Land & Armaments Holdings LLC
8
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Land & Armaments Inc.
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Land & Armaments L.P.
8
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Land Systems (Finance) Limited
BAE Systems Land Systems ATF Limited
BAE Systems Land Systems FMTV International Inc.
10
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Land Systems Pinzgauer (Holdings)
Limited
BAE Systems Land Systems Pinzgauer Limited
BAE Systems MAI Turkey Hava Sistemleri A.S¸.
Üniversiteler Mahallesi, Beytepe Lodumlu Köy Yolu Cad.
No: 5/348 Çankaya, Ankara, Turkey
BAE Systems Marine (Holdings) Limited
BAE Systems Marine (YSL) Limited
BAE Systems Marine Limited
BAE Systems Netherlands B.V.
c/o IQ-EQ, Hoogoorddreef 15, 1101 BA Amsterdam,
Netherlands
BAE Systems Norfolk Ship Repair Inc.
750 West Berkley Avenue, Norfolk, VA 23523, United States
BAE Systems Norway AS
C. J. Hambros plass 2C, 0164 Oslo, Norway
BAE Systems Oman LLC
8
PO Box 74, Postal Code 111, Seeb, Oman
BAE Systems Ordnance Systems Inc.
4509 West Stone Drive, Kingsport, TN 37660-9982,
United States
BAE Systems Pension Funds CIF Trustees Limited
2
BAE Systems Pension Funds Investment
Management Limited
2
BAE Systems Pension Funds Trustees Limited
2
BAE Systems Project Services Limited
BAE Systems Projects (Canada) Limited
BAE Systems Properties Limited
BAE Systems Regional Aircraft Colombia SAS
13
c/o Brigard & Urrutia, Calle 70 A No. 4-41, Bogotá, Colombia
BAE Systems Resolution Inc.
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems S&S Operations Inc.
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems San Diego Ship Repair Inc.
2205 East Belt Street, Foot of Sampson Street, San Diego,
CA 92113, United States
BAE Systems Saudi America Limited
Riyadh Kingdom Centre 28th Floor (REGUS),
PO Box 23088, Riyadh 11321, Central Province,
Riyadh, Kingdom of Saudi Arabia
BAE Systems Saudi Arabia (Maintenance
and Equipment Services) Limited
PO Box 1732, Riyadh 11441, Kingdom of Saudi Arabia
BAE Systems Saudi Arabia (Vehicles and
Equipment Holdings) Limited
2
BAE Systems Saudi Arabia (Vehicles and
Equipment Nominees) Limited
2
BAE Systems Saudi Limited
PO Box 1732, Riyadh 11441, Kingdom of Saudi Arabia
BAE Systems Serviços de Aviônicos Ltda.
Rua Ambrósio Molina, No. 1090. Bloco F, Eugênio de Melo,
São José dos Campos, São Paulo 12.247-000, Brazil
BAE Systems Services Limited
BAE Systems Shared Services Inc.
11215 Rushmore Drive, Charlotte, NC 28277, United States
BAE Systems Ship Repair Inc.
750 West Berkley Ave., Norfolk, VA 23523, United States
BAE Systems Southeast Shipyards AMHC Inc.
8500 Heckscher Drive, Jacksonville, FL 32226, United States
BAE Systems Space & Mission Systems Holdings Inc.
10 Longs Peak Drive, Broomfield, CO 80021, United States
BAE Systems Space & Mission Systems Inc.
10 Longs Peak Drive, Broomfield, CO 80021, United States
BAE Systems Surface Ships (Holdings) Limited
BAE Systems Surface Ships (Overseas) Limited
BAE Systems Surface Ships (Projects) Limited
BAE Systems Surface Ships Integrated Support
Limited
BAE Systems Surface Ships International Limited
BAE Systems Surface Ships Limited
BAE Systems Surface Ships Maritime Limited
BAE Systems Surface Ships Projects (Malaysia)
Sdn Bhd
Level 29 Menara Binjai, No 2 Jalan Binjai, Off Jalan Ampang,
50450 Kuala Lumpur, Malaysia
BAE Systems Surface Ships Support Limited
5
BAE Systems SWS Defence AB
SE-691 80 Karlskoga, Sweden
BAE Systems Tactical Vehicle Systems LP
8
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Technology LLC
Office No. 458, Building No. 47, 90th North Street, Section 1,
New Cairo, 5th Settlement, Cairo, Egypt
BAE Systems Technology Solutions & Services Inc.
520 Gaither Road, Rockville, MD 20850, United States
BAE Systems TVS Holdings LLC
8
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BAE Systems Ukraine LLC
23-A Building, Yaroslaviv Val Street, Kyiv City, 01054,
Ukraine
BAE Systems Zephyr Corporation
United Agent Group, Inc. 3411 Silverside Rd. Tatnall,
Bldg. #104, Wilmington, DE 19810, United States
BAE Systems Zephyr Fifth Corporation
United Agent Group, Inc. 3411 Silverside Rd. Tatnall,
Bldg. #104, Wilmington, DE 19810, United States
BAE Systems Zephyr Fourth Corporation
United Agent Group, Inc. 3411 Silverside Rd. Tatnall,
Bldg. #104, Wilmington, DE 19810, United States
BAE Systems Zephyr Second Corporation
United Agent Group, Inc. 3411 Silverside Rd. Tatnall,
Bldg. #104, Wilmington, DE 19810, United States
BAE Systems Zephyr Third Corporation
United Agent Group, Inc. 3411 Silverside Rd. Tatnall,
Bldg. #104, Wilmington, DE 19810, United States
BAE Systems, Inc.
2941 Fairview Park Drive, Suite 100, Falls Church, VA 22042,
United States
BIS Invest S.à.r.l.
2, Place de Strasbourg, L-2562, Luxembourg, Grand Duchy
of Luxembourg
Bohemia Interactive Australia Pty Ltd
15
Unit 2, Building A, 2 Technology Place, Williamtown
NSW 2318, Australia
Bohemia Interactive Simulations GK
c/o ARK OUTSOURCING KK, 4-3-5-704 Ebisu, Shibuya-ku,
Tokyo, 150-0013, Japan
207BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Consolidated financial statements continued
35. Information about related undertakings continued
Subsidiary undertakings – wholly-owned continued
Bohemia Interactive Simulations GmbH
Vistra Corporate Services, Westendstraße 28, 60325,
Frankfurt am Main, Germany
Bohemia Interactive Simulations, Inc.
3050 Technology Pkwy, Suite 110, Orlando, FL 32746,
United States
Bohemia Interactive Simulations K.S.
8
Karolinská, 654/2, Karin, 186 00 Prague 8, Czech Republic
Bohemia Interactive Simulations Korea Ltd
c/o ARK OUTSOURCING KK, 4-3-5-704 Ebisu, Shibuya-ku,
Tokyo, 150-0013, Japan
Bohemia Interactive Simulations sp z.o.o.
Ul. Ostrobramska 101, 04-041, Warsaw, Poland
Bohemia Interactive Simulations (UK) Limited
31 Hercules Way, Farnborough Aerospace Centre,
Farnborough, Hampshire GU14 6UU, United Kingdom
Bohemia Invest One Ltd
Bohemia Invest Two Ltd
British Aerospace (Far East) Limited
16
Level 54, Hopewell Centre, 183 Queen’s Road East,
Hong Kong
British Aerospace (Malaysia) Sdn Bhd
16
Unit 30-01, Level 30, Tower A, Vertical Business Suite,
Avenue 3, Bangsar South, No.8, Jalan Kerinchi,
59200 Kuala Lumpur, Malaysia
British Aircraft Corporation (Pension Fund Trustees)
Limited
2
British Aircraft Corporation Limited
2
Callen-Lenz Associates Limited
3 The Old Barns Manor Farm, Chilmark, Salisbury,
Wiltshire SP3 5AF, United Kingdom
CPS International, Inc.
10
Benedetti & Benedetti, Comosa Building, 21st Floor, PO Box
850120, Panama 5, Panama
Creole (Nigeria) Limited
5,7
9th Floor, St. Nicholas House, 26 Catholic Mission Street,
Lagos, Nigeria
Detica Group Limited
Detica Mexico S. de R.L. de C.V.
Torre Esmeralda II, Blvd Manuel Avila Camacho No. 36 Piso
18, Lomas de Chapultepec, 11000 D.F., Mexico
Detica Services, Inc.
5th Floor, Suite 1920, 256 Franklin Street, Boston, MA 02110,
United States
Dividend Training Limited
Elliott Brothers (London) Limited
ETI Engineering, Inc.
1676 International Drive, 10th Floor, Suite 1000,
McLean, VA 22102, United States
Eurostep AB
Gustavslundsvägen 137, SE-167 51 Bromma, Sweden
Eurostep Limited
Unit 16 Ffordd Richard Davies, St. Asaph Business Park,
St. Asaph, Denbighshire LL17 0LJ, United Kingdom
Eurostep Oy
Metsänneidonkuja 12 02130 Espoo, Finland
Eurostep S.à.r.l.
8 rue Germain Soufflot 78180 Montigny-le-Bretonneux,
France
EVU Czech, S.R.O.
Pernerova 691/42, Karlin, 186 00 Prague 8, Czech Republic
Gloster Aircraft Limited
2
H-B Utveckling, H-B Development AB
Nybrogatan 7, SE-114 34 Stockholm, Sweden
Hadrian Holdings, Inc.
521 Fifth Avenue, New York, NY 101075, United States
Hadrian Trustees Limited
1
Hägglunds Vehicle GmbH
Ernst-Grote Strasse 13, 30916 Isernhagen, Germany
Hawker Siddeley Aviation Limited
2
Hawker Siddeley Dynamics Limited
2
High Aerospace Ltd.
Suite 204 Warner House, 123 Castle Street, Salisbury,
Wiltshire SP1 3TB, United Kingdom
HSA/HSD Pension Fund Trustees Limited
2
Hunter Aerospace Corporation Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
In-Space Missions Limited
8 Oriel Court, Omega Park, Alton GU34 2YT, United Kingdom
International Military Sales Limited
Jetstream Aircraft Limited
2
Prestwick International Airport, Prestwick, Ayrshire KA9
2RW, United Kingdom
Kirintec B.V.
Prins Hendrikkade 21 E, 1012 TL, Amsterdam, Netherlands
Kirintec International DMCC
Unit 2707, Indigo Icon Tower, Plot No JLT-PH1-F3A,
Jumeirah Lakes Towers, Dubai, United Arab Emirates
Kirintec Limited
Walter Scott House, 10, Old Gloucester Road, Ross-On-Wye,
Herefordshire HR9 5PB, United Kingdom
Kirintec Sp.Zo.o
210, 86, Hoza, Warsaw, 00-682, Poland
Malloy Aeronautics Defense LLC
10th Floor, 100 Light Street, Baltimore, MD 21202,
United States
Malloy Aeronautics Limited
MES Holdco Limited
Charter Place, 23/27 Seaton Place, St. Helier, Jersey JE1 1JY
MES Interco
3
Meslink Limited
Newcombe Properties Limited
Nexus Defence Limited
Pitch Technologies AB
Repslagaregatan 25, SE-582 22 Linköping, Sweden
Pitch Technologies Ltd.
Sweden House, 5 Upper Montagu Street, London W1H 2AG,
United Kingdom
Prismatic Ltd.
5
2 Omega Park, Alton GU34 2QE, United Kingdom
PT. BAE Systems Services
Wisma 46, Kota BNI, 34th Floor, Suite 34.01.A,
Jl. Jenderal Sudirman Kavling 71, Jakarta 10220, Indonesia
Pulse Power and Measurement Inc.
1717 Pennsylvania Avenue, NW Suite, 1025, Washington,
DC 20006, United States
Pulse Power and Measurement Limited
17
65 Shrivenham Hundred Business Park, Watchfield,
Swindon, Wiltshire SN6 8TY, United Kingdom
Representaciones SSTS, CA
10
Ave Francisco de Miranda, Centro Lido El Rosal Oficina 71B,
Caracas, Venezuela
Royal Ordnance (Crown Service) Pension Scheme
Trustees Limited
Royal Ordnance Senior Staff Pension Scheme
Trustees Limited
Scottish Aviation Limited
2
Prestwick International Airport, Prestwick, Ayrshire KA9
2RW, United Kingdom
Shipbuilding (MSF) Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
Shipbuilding (VIC) Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
Simulation Technologies S.A.S.
8 rue de La Michodière, Paris, 75002, France
SkyCircuits Ltd
9 The Old Barns Manor Farm, Chilmark, Salisbury,
Wiltshire SP3 5AF, United Kingdom
Stewart & Stevenson TVS UK Limited
Stratsec.net Sdn Bhd
Unit F-3-1, Blok F, Third Floor, CBD Perdana 3, Jalan Perdana,
Cyber 12, 63000 Cyberjaya, Selangor Darul Ehsan, Malaysia
Support Solutions General Services and Contracting
Company/Limited Liability Company
8,13
House No. 145, Street No. 1, Qtr. 611, Al Andulous Area,
Al Mansour, Baghdad, Iraq
TDS International Holdings Pty Limited
15
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
TDS International Pty Limited
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
Techmodal Limited
Techmodal Ventures Limited
18
The Blackburn Aeroplane & Motor Co Limited
2
The Bristol Aviation Company Limited
2
The British & Colonial Aeroplane Co. Limited
2
The Supermarine Aviation Works Limited
2,4
Thomas Sopwith Aviation Company Limited
2
VSEL Birkenhead Limited
Westover Controls Incorporated
1098 Clark Street, Endicott, NY 13760, United States
208 BAE Systems plc  Annual Report 2024
Consolidated financial statements
35. Information about related undertakings continued
Subsidiary undertakings
– not wholly-owned
Advanced National Company for Aircraft
Maintenance Limited (51%)
PO Box 1732, Riyadh 11441, Kingdom of Saudi Arabia
BAE Systems Saudi Development and Training
Company Limited (51%)
PO Box 67775, Riyadh 11517, Kingdom of Saudi Arabia
BAE Systems SDT (UK) Limited (51%)
Flight Control System Management GmbH (66.6%)
19
PO Box 801109, 81663 Munich, Germany
Granada Enterprises Limited (51%)
PO Box 1732, Riyadh 11441, Kingdom of Saudi Arabia
Hadrian Properties, Inc. (95%)
521 Fifth Avenue, New York, NY 101075, United States
International Systems Engineering Company Limited
(46.2%)
20
PO Box 54002, Riyadh 11514, Kingdom of Saudi Arabia
Overhaul and Maintenance Company Holding (51%)
PO Box 1732, Riyadh 11441, Kingdom of Saudi Arabia
Saudi Maintenance & Supply Chain Management
Company Limited (51%)
PO Box 1732, Riyadh 11441, Kingdom of Saudi Arabia
Saudi Technology & Logistics Services Limited (65%)
2
PO Box 1732, Riyadh 11441, Kingdom of Saudi Arabia
SMSCMC (UK) Limited (51%)
TMB International Logistics Limited (51%)
Equity accounted investments
Abercromby Property International (20.42%)
521 Fifth Avenue, New York, NY 101075, United States
Air Astana (16.95%)
4A Zakarpatskaya Street, Turksib District, Almaty, 050039,
Republic of Kazakhstan
AMSH B.V. (50%)
21
De Lairessestraat 145 E, Amsterdam, 1075 HJ, Netherlands
BAE Systems Strategic Aerospace Services WLL (49%)
Building 58, Street 850, Area 23, Qatari Bin Al Fajaa,
Doha, Qatar
BAeHAL Software Limited (40%)
2,14
Airport Lane, HAL Estate, Bangalore 560010, India
BHIC Bofors Defense Asia Sdn Bhd (49%)
Level 21, Suite 21.01, The Gardens South Tower, Mid Valley
City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia
Canadian Naval Support Limited (50%)
22
3099 Barrington Street, Halifax NS B3K 5M7, Canada
Corsair Pty Ltd (51%)
23
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
CTA International SAS (50%)
13 Route De La Miniere, 78034 Versailles Cedex, France
Data Link Solutions L.L.C. (50%)
8,16
350 Collins Road, Northeast Cedar Rapids, IA 52498,
United States
Eurofighter Jagdflugzeug GmbH (33.33%)
2
Am Soldnermoos 17, 85399 Hallbergmoos, Germany
FADEC International LLC (50%)
8
1098 Clark Street, Endicott, NY 13760, United States
FAST Holdings Limited (50%)
14,15
FAST Training Services Limited (50%)
14
Innovaero Holdings Pty Ltd (51%)
23
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
Innovaero Operations Pty Ltd (51%)
23
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
Innovaero Pty Ltd (51%)
23
Level 2, 80 Flinders Street, Adelaide SA 5000, Australia
KBS Maritime Limited (50%)
24
Victory Building (Pp 72), Rm. 233, The Parade,
HM Naval Base, Portsmouth PO1 3LS, United Kingdom
MBDA B.V. (37.5%)
De Lairessestraat 145 E, Amsterdam, 1075 HJ, Netherlands
MBDA Holdings S.A.S. (25%)
1 Avenue Réaumur, 92350 Le Plessis-Robinson, France
MBDA S.A.S. (37.5%)
1 Avenue Réaumur, 92350 Le Plessis-Robinson, France
Nobeli Business Support AB (34%)
SE-691 80 Karlskoga, Sweden
Panavia Aircraft GmbH (42.5%)
2
Am Soldnermoos 17, 85399 Hallbergmoos, Germany
Promoveo Solutions JV LLC (49%)
260 Peachtree Street NW, #2200, Atlanta, GA 30303,
United States
Reaction Engines Limited (15.3%)
25
Building F5, Culham Campus, Abingdon OX14 3DB,
United Kingdom
Rheinmetall BAE Systems Land Limited (45%)
Hadley Castle Works, PO Box 106, Telford TF1 6QW,
United Kingdom
Saab Bofors Test Center AB (30%)
Box 418, SE-691 27 Karlskoga, Sweden
Sealand Support Services Limited (33.3%)
7,26
45 Gresham Street, London, EC2V 7BG, United Kingdom
Winner Developments Limited (33.3%)
Notes
1. Company limited by guarantee.
2. Directly owned by BAE Systems plc.
3. Unlimited company.
4. Ownership held in class of A shares, B shares
and preference shares.
5. Ownership held in class of A shares and B shares.
6. Ownership held in ordinary shares and
preference shares.
7. In members’ voluntary liquidation (MVL).
8. Unincorporated entity for which the address
given is the principal place of business.
9. Ownership held in ordinary shares and
redeemable preference shares.
10. Ownership held in authorized shares.
11. 40% directly owned by BAE Systems plc.
12. Ownership held in ordinary shares, ordinary A
and ordinary B shares.
13. In liquidation.
14. Year end 31 March.
15. Ownership held in ordinary A shares.
16. Year end 30 September.
17. Ownership held in class of A, B, C, D, E, F
and G ordinary shares.
18. In strike off.
19. 33.3% directly owned by BAE Systems plc.
20. Subsidiary due to unilateral controlling rights.
21. Ownership held in class of B shares.
22. Ownership held in common shares (50%)
and B Preferred shares (100%).
23. Not deemed a subsidiary due to rights of
other shareholder.
24. Ownership held in ordinary shares (50%)
and preference shares (75%).
25. In administration.
26. Ownership held in ordinary shares (33.3%)
and A Cumulative Preference Shares (75%).
209BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Note
Issued
share
capital
£m
Share
premium
£m
Other
reserves
£m
Retained
earnings
1
£m
Total
equity
£m
At 1 January 2023 82 1,252 218 3,160 4,712
Profit for the year – – – 1,264 1,264
Total other comprehensive expense for the year – – (5) (89) (94)
Total comprehensive (expense)/income for the year – – (5) 1,175 1,170
Share-based payments 10 – – – 110 110
Purchase of own shares 9 (1) – 1 (558) (558)
Ordinary share dividends
2
– – – (857) (857)
Proceeds from unclaimed asset programme – 1 – – 1
At 31 December 2023 81 1,253 214 3,030 4,578
Profit for the year – – – 1,560 1,560
Total other comprehensive income for the year – – 1 32 33
Total comprehensive income for the year – – 1 1,592 1,593
Share-based payments 10 – – – 144 144
Purchase of own shares 9 (1) – 1 (551) (551)
Ordinary share dividends
2
– – – (937) (937)
At 31 December 2024 80 1,253 216 3,278 4,827
1. The non-distributable portion of retained earnings is £1,148m (2023 £1,037m).
2. Detailsofordinarysharedividendsareprovidedinnote26totheConsolidatedfinancialstatements.
Company statement of changes in equity
for the year ended 31 December
210 BAE Systems plc  Annual Report 2024
Company financial statements
Note
2024
£m
2023
£m
Non-current assets
Intangible assets 9 10
Property, plant and equipment – 1
Right-of-use assets 13 16
Investments in subsidiary undertakings and participating interests 2 10,258 9,272
Amounts owed by subsidiary undertakings 3 9,440 4,781
Other receivables 3 39 9
Post-employmentbenefitsurpluses 8 150 105
Otherfinancialassets 4 383 377
20,292 14,571
Current assets
Trade and other receivables 3 167 126
Current tax 13 13
Otherfinancialassets 4 380 356
Cash and cash equivalents 2,584 3,303
3,144 3,798
Total assets 23,436 18,369
Non-current liabilities
Loans 5 (6,724) (2,872)
Lease liabilities (12) (16)
Other payables 6 (4) (2)
Post-employmentbenefitobligations 8 (74) (79)
Otherfinancialliabilities 4 (293) (332)
Provisions 7 (132) (127)
(7,239) (3,428)
Current liabilities
Loans 5 (77) (24)
Lease liabilities (4) (4)
Trade and other payables 6 (10,920) (9,908)
Otherfinancialliabilities 4 (368) (423)
Provisions 7 (1) (4)
(11,370) (10,363)
Total liabilities (18,609) (13,791)
Net assets 4,827 4,578
Capital and reserves
Issued share capital 9 80 81
Share premium 1,253 1,253
Other reserves 9 216 214
Retained earnings
1
3,278 3,030
Total equity 4,827 4,578
1. TheCompany’sprofitfortheyearwas£1,560m(2023£1,264m).
Approved by the Board of directors of BAE Systems plc on 18 February 2025 and signed on its behalf by:
C N Woodburn B M Greve
ChiefExecutive ChiefFinancialOfficer
Registered number: 01470151
Company balance sheet
as at 31 December
211BAE Systems plc  Annual Report 2024
Additional informationGovernance Financial statementsStrategic report
Notes to the Company financial statements
1. Preparation of the Company financial statements
Basis of preparation
The directors have a reasonable expectation that the Company has adequate resources to continue its operational existence for at least
12monthsfromthesigningoftheaccounts,notwithstandingthenetcurrentliabilitiesof£8,226m.Therefore,thefinancialstatements
ofBAESystemsplchavebeenpreparedonagoingconcernbasis,asdisclosedintheStrategicreportonpage67,andinaccordance
withFinancialReportingStandard(FRS)101,ReducedDisclosureFramework.
Inpreparingthesefinancialstatements,theCompanyappliestherecognition,measurementanddisclosurerequirementsofUK-adopted
InternationalFinancialReportingStandards(IFRS),butmakesamendmentswherenecessaryinordertocomplywiththeCompaniesAct2006
and has set out below where advantage of the FRS 101 disclosure exemptions have been taken:
– the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based Payment;
– the requirements of paragraphs 62, B64(d), B64(e), B64(g), B64(h), B64(j) to B64(m), B64(n)(ii), B64(o)(ii), B64(p), B64(q)(ii), B66
andB67ofIFRS3BusinessCombinations;
– the requirements of paragraph 33(c) of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations;
– the requirements of IFRS 7 Financial Instruments: Disclosures;
– the requirements of paragraphs 91 to 99 of IFRS 13 Fair Value Measurement;
– the requirements of the second sentence of paragraph 110 and paragraphs 113(a), 114, 115, 118, 119(a) to (c), 120 to 127 and 129
ofIFRS15RevenuefromContractswithCustomers;
– the requirements of paragraph 52, the second sentence of paragraph 89, and paragraphs 90, 91 and 93 of IFRS 16 Leases and the
requirements of paragraph 58 of IFRS 16 Leases;
– the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements, to present comparative information in respect of:
paragraph53(a),(h)and(j)ofIFRS16Leases;paragraph79(a)(iv)ofIAS1;paragraph73(e)ofIAS16Property,PlantandEquipment;
paragraph118(e)ofIAS38IntangibleAssets;andparagraphs76and79(d)ofIAS40InvestmentProperty;
– the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134 to 136 of IAS 1 Presentation of
FinancialStatements;
– the requirements of paragraphs 1 to 44E, 44H(b)(ii) and 45 to 63 of IAS 7 Statement of Cash Flows;
– the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;
– the requirements of paragraphs 17 and 18A of IAS 24 Related Party Disclosures;
– the requirements in IAS 24 Related Party Disclosures, to disclose related party transactions entered into between two or more members
ofagroup,providedthatanysubsidiarywhichisapartytothetransactioniswholly-ownedbysuchamember;
– therequirementsofparagraph74A(b)ofIAS16Property,PlantandEquipment;
– the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d) to 134(f) and 135(c) to 135(e) of IAS 36 Impairment of Assets; and
– the requirements of paragraphs 88C and 88D of IAS 12 Income Taxes.
TheCompanyintendstocontinuetoprepareitsfinancialstatementsinaccordancewithFRS101.
InaccordancewithSection408(3)oftheCompaniesAct2006,theCompanyisexemptfromtherequirementtopresentitsown
incomestatement.TheamountofprofitfortheyearoftheCompanyisdisclosedintheCompanybalancesheet.
TheCompanyfinancialstatementsarepresentedinpoundssterlingand,unlessstatedotherwise,roundedtothenearestmillion.Thefinancial
statementshavebeenpreparedunderthehistoricalcostconvention,asmodifiedbytherevaluationofrelevantfinancialassetsandfinancial
liabilities (including derivative instruments).
212
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Company financial statements
1. Preparation of the Company financial statements continued
Material accounting policies
Thematerialaccountingpoliciesappliedinthepreparationoftheseindividualfinancialstatementsaresetoutbelow.Thesepolicieshave
beenappliedconsistentlytoalltheyearspresented,unlessotherwisestated.
Investments in subsidiary undertakings and participating interests
Fixed asset investments in shares in subsidiary undertakings and participating interests are stated at cost less provision for impairment.
The Company recognises an increase in its investments in subsidiary undertakings in respect of the cost of share-based payment awards
issuedbytheCompanytoemployeesoftheCompany’soperatingsubsidiaries,withacorrespondingentrytoequity.
Amounts owed by subsidiary undertakings
Amountsowedbysubsidiaryundertakingsarestatedatamortisedcostincludingaprovisionforexpectedcreditlosses.Forthepurposes
ofimpairmentassessment,amountstosubsidiaryundertakingsareconsideredlowcreditriskand,therefore,theCompanymeasuresthe
provision at an amount equal to 12-month expected credit losses.
Other material accounting policies
OthermaterialaccountingpoliciesareconsistentwiththeConsolidatedfinancialstatements.
Judgements and sources of estimation uncertainty
Inthecourseofpreparingthefinancialstatements,nojudgementshavebeenmadeintheprocessofapplyingtheCompany’saccounting
policies,otherthanthoseinvolvingestimates,thathavehadasignificanteffectontheamountsrecognisedintheCompanyfinancial
statements.
Key sources of estimation uncertainty
Post-employment benefits
Anumberofactuarialassumptionsaremadeinassessingthevalueofpost-employmentbenefitobligations,includingdiscountrate,
inflationrateandmortalityassumptions.Foreachoftheactuarialassumptionsusedthereisawiderangeofpossiblevaluesand
managementestimatesapointwithinthatrangethatmostappropriatelyreflectstheGroup’scircumstances.
If estimates relating to these actuarial assumptions are no longer valid or change due to changing economic and social conditions,
thenthepotentialobligationsdueundertheseschemescouldchangesignificantly.
Discountandinflationratescouldchangesignificantlyasaresultofaprolongedeconomicdownturn,monetarypolicydecisionsand
interventions or other macroeconomic issues. The impact of estimates made with regard to mortality projections may also change.
Similarly, the values of many assets are subject to estimates and assumptions, in particular those which are held in unquoted pooled
investmentvehicles.Theassociatedfairvalueoftheseunquotedpooledinvestmentsisestimatedwithconsiderationofthemostrecently
available valuations provided by the investment or fund managers. These valuations inherently incorporate a number of assumptions
includingtheimpactofclimatechangeontheunderlyinginvestments.Theoveralllevelofestimationuncertaintyinvaluingtheseassets
couldthereforegiverisetoamaterialchangeinvaluationwithinthenext12months.
Furthermore,estimatesarerequiredaroundtheGroup’sabilitytoaccessitsdefinedbenefitsurpluses,andonwhatbasis,whichthen
determines the associated rate of tax to apply. Depending on the outcome, judgement is then required to determine the presentation
ofanytaxpayableinrecoveringasurplus.
Note24oftheConsolidatedfinancialstatementsprovidesinformationonthekeyassumptionsandanalysisoftheirsensitivities.
Changes in accounting policies
Severalstandards,interpretationsandamendmentstoexistingstandardsbecameeffectiveon1January2024,asdetailedonpage151
oftheConsolidatedfinancialstatements,noneofwhichhadamaterialimpactontheCompany.
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Additional informationGovernance Financial statementsStrategic report
Notes to the Company financial statements continued
2. Investments in subsidiary undertakings and participating interests
£m
Cost
At 1 January 2024 9,278
Additions 1,286
Disposal (300)
At 31 December 2024 10,264
Impairment provisions
At 1 January 2024 and 31 December 2024 6
Net carrying value
At 31 December 2024 10,258
At 31 December 2023 9,272
3. Trade and other receivables
2024
£m
2023
£m
Non-current
Amounts owed by subsidiary undertakings
1
9,440 4,781
Other receivables 39 9
9,479 4,790
Current
Prepayments 12 13
Accrued income 14 34
Other receivables 141 79
167 126
1. Amounts owed by subsidiary undertakings are repayable on demand. Whilst the majority of these receivables are interest free, certain balances bear interest priced
onanarm’s-lengthbasis.Provisionforexpectedcreditlossesisimmaterial.
4. Other financial assets and liabilities
2024 2023
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
Non-current
Cashflowhedges–foreignexchangecontracts 2 – 2 –
Other foreign exchange/interest rate contracts 271 (272) 275 (275)
Debt-relatedderivativefinancialinstruments 110 (21) 100 (57)
383 (293) 377 (332)
Current
Cashflowhedges–foreignexchangecontracts 2 – 1 –
Other foreign exchange/interest rate contracts 378 (368) 355 (402)
Debt-relatedderivativefinancialinstruments – – – (21)
380 (368) 356 (423)
Included within other foreign exchange contracts are derivatives entered into on behalf of subsidiaries. These derivatives were passed down
tothehedgingsubsidiaryusinganinternalderivativewithequalbutoppositetermstotheexternalderivatives,andvaluedusingthesame
methodologyastheexternalderivatives.ThemajorityofsuchderivativesweredesignatedincashflowhedgesintheConsolidatedfinancial
statements.Disclosuresinrespectofthematurityprofileandfairvalueofotherfinancialassetsandliabilitiesareprovidedinnotes15and28
totheConsolidatedfinancialstatements.
214
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Company financial statements
5. Loans
2024
£m
2023
£m
Non-current
US$800m5%bond,repayable2027 636 –
US$1,250m5.125%bond,repayable2029 993 –
US$1,300m3.4%bond,repayable2030 1,032 1,013
US$1,000m1.9%bond,repayable2031 793 778
US$500m5.25%bond,repayable2031 397 –
US$1,500m5.3%bond,repayable2034 1,187 –
US$400m5.8%bond,repayable2041 317 311
US$1,000m3%bond,repayable2050 784 770
US$750m5.5%bond,repayable2054 585 –
6,724 2,872
Current
Accrued interest 77 24
77 24
6. Trade and other payables
2024
£m
2023
£m
Non-current
Other payables 4 2
Current
Amounts owed to subsidiary undertakings
1
8,843 8,263
Amounts owed to equity accounted investments 1,975 1,509
Accruals 64 98
Deferred income 12 10
Other payables 26 28
10,920 9,908
1. Amounts owed to subsidiary undertakings are repayable on demand. Whilst the majority of these payables are interest free, certain balances incur interest priced
onanarm’s-lengthbasis.
7. Provisions
Contractual
and other
£m
Non-current 127
Current 4
At 1 January 2024 131
Created –
Utilised (1)
Released (2)
Net present value adjustments 5
At 31 December 2024 133
Represented by:
Non-current 132
Current 1
133
The Company holds provisions for contractual costs that it expects to incur over an extended period. These costs are based on past experience
ofsimilaritemsandrepresentmanagement’sbestestimateofthelikelyoutcome,butthetimingandamountoftheoutflowscoulddiffer
significantlyfrommanagement’sestimates.
215
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Notes to the Company financial statements continued
8. Post-employment benefits
TheCompanyparticipatesinalloftheGroup’sUKpensionschemes.Regularcontributionstotheschemesaremadeinlinewiththeschedule
ofcontributionsandashareofdeficitfundingisallocatedtoparticipatingemployers.Thedeficitallocationmethodologyisbasedonthe
historical allocation percentages applied for all retired and deferred scheme members, adjusted by the relative payroll contributions of active
members.Fulldisclosuresrelatingtotheseschemesaregiveninnote24totheConsolidatedfinancialstatements.
Amounts recognised on the balance sheet
ThetablebelowshowstheCompany’sshareoftheGroup’sUKpensionschemesafterallocationtootherparticipatingemployers.
2024
£m
2023
£m
Present value of unfunded obligations (74) (79)
Present value of funded obligations (1,554) (1,748)
Fair value of scheme assets 1,754 1,910
Total gross surplus 126 83
Withholding tax on surpluses (50) (57)
Surplus 76 26
Represented by:
Post-employmentbenefitsurpluses 150 105
Post-employmentbenefitobligations (74) (79)
76 26
Surplus recognition
A number of schemes are in an accounting surplus position. The surpluses have been recognised on the basis that the future economic
benefitsareunconditionallyavailabletotheGroup,whichisassumedtobeviaarefund.TheAuthorisedSurplusPaymentsCharge
(VariationofRate)Order2024becameeffectivefrom6April2024andreducedthewithholdingtaxratefrom35%to25%forauthorised
surpluspaymentsandthereforethesurplushasbeenrecognisednetofwithholdingtaxof25%asat31December2024(202335%).
Thistaxwouldbeleviedpriortothefuturerefundingofanysurplusandthereforethesurplushasbeenpresentedonanetbasisasthis
isnotdeemedtobeanincometaxoftheGroup.
9. Share capital and other reserves
Share capital and equity dividends
DisclosuresinrespectoftheCompany’ssharecapitalandonequitydividendsareprovidedinnote26totheConsolidatedfinancialstatements.
Other reserves
Statutory
reserve
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Total
£m
At 1 January 2023 202 8 8 218
Amounts recognised in hedging reserve – – (5) (5)
Shares cancelled – 1 – 1
At 31 December 2023 202 9 3 214
Amounts recognised in hedging reserve – – 1 1
Shares cancelled – 1 – 1
At 31 December 2024 202 10 4 216
Statutory reserve
UnderSection4oftheBritishAerospaceAct1980,thisreservemayonlybeappliedinpayingupunissuedsharesoftheCompany
tobeallottedtomembersoftheCompanyasfullypaidbonusshares.
Capital redemption reserve
The capital redemption reserve represents the cumulative nominal value of the Company’s ordinary shares repurchased and
subsequentlycancelled.
Hedging reserve
Thehedgingreservecomprisestheeffectiveportionofthecumulativenetchangeinthefairvalueofcashflowhedginginstruments
relatedtohedgedtransactionsthathavenotyetoccurred.
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Company financial statements
9. Share capital and other reserves continued
Purchase of own shares
In July 2022, the directors approved a share buyback programme of up to £1.5bn (the 2022 share buyback programme). The 2022 share
buyback programme was completed on 24 July 2024. In total, 163,907,003 ordinary shares were repurchased under the 2022 share buyback
programme for a total cost (including transaction costs) of £1,508m.
In August 2023, the directors approved a further share buyback programme of up to £1.5bn (the 2023 share buyback programme). The 2023
share buyback programme commenced on 25 July 2024. The 2023 share buyback programme is expected to complete within three years of
its commencement.
For the year ended 31 December 2023, 58,689,756 ordinary shares were repurchased under the 2022 share buyback programme for a total
cost (including transaction costs) of £558m.
For the year ended 31 December 2024, 22,220,182 ordinary shares were repurchased under the 2022 share buyback programme at a total
cost (including transaction costs) of £287m. A further 20,901,154 ordinary shares were repurchased under the 2023 share buyback programme
atatotalcost(includingtransactioncosts)of£264m.
All ordinary shares acquired have been subsequently cancelled, with the nominal value of ordinary shares cancelled deducted from share
capital against the capital redemption reserve.
Aspartofthebuybackprogramme,itwasagreedthatshouldabetteralternativeusefortheCompany’scashreservesbeidentified,the
sharebuybackprogrammeswouldbeceasedandthemoneyinsteadusedforthealternativepurpose.Therefore,whentheCompany
issuedamandatetothebrokerstopurchasesharesontheirbehalf,themandatewasstructuredsuchthatitcouldberevokedatanypoint.
Assuch,nofinancialliabilityhasbeenrecognisedforsharesnotyetpurchasedundertheprogrammesat31December.
10. Share-based payments
Options over shares of the Company have been granted to employees of the Company under various plans. Details of the terms and conditions
ofeachshare-basedpaymentplanaregivenintheAnnualremunerationreportonpages109to125.
2024 2023
Range of
exercise price
of outstanding
options
£
Weighted
average
remaining
contracted life
Years
Range of
exercise price
of outstanding
options
£
Weighted
average
remaining
contracted life
Years
Executive Share Option Plan (ExSOP) 4.85 – 7.83 6 4.85 – 7.83 7
Performance Share Plan (PSP) – 5 – 5
Restricted Share Plan (RSP) – 4 – 5
The average share price in the year was £12.85 (2023 £9.77).
11. Employees
The average and year-end numbers of employees of the Company at 31 December 2024 were 1,363 (2023 1,349) and 1,447 (2023 1,480)
respectively.AlloftheCompany’semployeesworkwithinheadofficefunctions.
Totalstaffcosts,excludingchargesforshare-basedpayments,wereasfollows:
2024
£m
2023
£m
Wages and salaries 127 106
Social security costs 22 17
Pensioncosts–definedcontributionplans 9 8
Pensioncosts–definedbenefitplans 13 15
171 146
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Notes to the Company financial statements continued
12. Other information
Company audit fee
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts totalled £3,145,000 (2023 £3,043,000). Fees payable
toDeloitteLLPanditsassociatesfornon-auditservicestotheCompanyarenotrequiredtobedisclosedbecausetheConsolidatedfinancial
statementsdisclosesuchfeesonaconsolidatedbasis(seenote3totheConsolidatedfinancialstatements).
Related party transactions
Disclosuresinrespectofrelatedpartytransactionsareprovidedinnote30totheConsolidatedfinancialstatements.
Directors’ emoluments
UnderSchedule5oftheLargeandMedium-SizedCompaniesandGroups(AccountsandReports)Regulations2008(Schedule5),total
directors’ emoluments, excluding Company pension contributions, were £11,542,570 (2023 £11,064,996); these amounts are calculated on
adifferentbasistoemolumentsintheAnnualremunerationreportwhicharecalculatedunderSchedule8oftheLargeandMedium-Sized
CompaniesandGroups(AccountsandReports)Regulations2008(Schedule8).Theseemolumentswerepaidfortheirservicesonbehalf
oftheBAESystemsGroup.NoemolumentsrelatedspecificallytotheirworkfortheCompany.UnderSchedule5,theaggregategainsmade
bythedirectorsfromtheexerciseofshareoptionsin2024asatthedateofexercisewas£4,439,876(2023£1,732,675)andthenet
aggregatevalueofassetsreceivedbydirectorsin2024fromLong-TermIncentivePlansascalculatedatthedateofvestingwas£21,067,185
(2023£6,364,979);theseamountsarecalculatedonadifferentbasisfromthevaluationofshareplanbenefitsunderSchedule8intheAnnual
remunerationreport.Retirementbenefitsareaccruingtoonedirectorinrespectofdefinedbenefitschemesandtothreedirectorsinrespect
ofdefinedcontributionschemes.
Subsidiary guarantees
Borrowingsbysubsidiaryundertakingstotalling£1,611m(2023£2,215m),whichareincludedintheGroup’sborrowings,havebeen
guaranteedbytheCompany.Theprobabilityofthesefinancialguaranteesbeingcalledisconsideredtoberemoteandthereforethefairvalue
is deemed to be negligible.
Information about related undertakings
InaccordancewithSection409oftheCompaniesAct2006,afulllistoftheCompany’ssubsidiariesandsignificantholdingsisincluded
innote35totheConsolidatedfinancialstatements.
13. Events after the reporting period
TherewerenoeventsafterthereportingperiodwhichwouldmateriallyimpactthebalancesreportedintheCompanyfinancialstatements.
218
BAE Systems plc  Annual Report 2024
Company financial statements
Additional information
Alternative performance measures
Alternative performance measures 220
Other information
Double materiality assessment 225
Task Force on Climate-related
FinancialDisclosures(TCFD) 226
How we manage climate-related
risksandopportunities 228
Climate scenario planning 229
Glossary
Glossaryoftermsused
in this Annual Report 233
Shareholder information
Usefulinformationforshareholders 236
219
BAE Systems plc  Annual Report 2024
GovernanceStrategic report Financial statements Additional information
Alternative performance measures
We monitor the underlying financial performance of the Group using APMs. Thesemeasures are not defined in IFRS
and,therefore, are considered tobe non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly,
therelevant IFRS measures arealsopresented where appropriate.
The Group uses these APMs as a mechanism to support year-on-year business performance and cash generation
comparisons, and to enhance management’s planning and decision-making on the allocation of resources. The APMs
arealso used to provide information in line with the expectations of investors, and when setting guidance on expected
future business performance. The Group presents these measures to the users to enhance their understanding of how
thebusiness has performed within the year, and does not consider them to be more important than, or superior to,
theirequivalent IFRS measures. As each APM is defined by the Group, they may not be directly comparable with
equivalently-named measures in other companies.
Purpose, definitions, breakdowns and reconciliations to the relevant statutory measure, where appropriate, are included below.
Sales
Purpose
EnablesmanagementtomonitortherevenueofboththeGroup’sownsubsidiariesaswellasrecognisingthestrategicimportanceinitsindustry
of its equity accounted investments, to ensure programme performance is understood and in line with expectations.
Definition
RevenueplustheGroup’sshareofrevenueofequityaccountedinvestments,excludingsubsidiaries’revenuefromequityaccountedinvestments.
Reconciliation of sales to revenue
2024
£m
2023
£m
Sales
KPI
28,335 25,284
Deduct:Group’sshareofrevenueofequityaccountedinvestments (3,729) (3,892)
Add: Subsidiaries’ revenue from equity accounted investments 1,706 1,686
Revenue 26,312 23,078
Underlying EBIT
Purpose
Providesameasureofoperatingprofitability,excludingone-offeventsoradjustingitemsthatarenotconsideredtobepartoftheongoing
operational transactions of the business, to enable management to monitor the performance of recurring operations over time, and which
iscomparableacrosstheGroup.
Definition
Operatingprofitexcludingamortisationofprogramme,customer-relatedandotherintangibleassets(seenote10totheConsolidated
financialstatements),impairmentofequityaccountedinvestmentsandintangibleassets,netfinancecostsandtaxexpenseofequity
accountedinvestments(EBIT)andadjustingitems.Theexclusionofamortisationofacquisition-relatedintangibleassetsistoallowconsistent
comparability internally and externally between our businesses, regardless of whether they have been grown organically or via acquisition.
Reconciliation of underlying EBIT to operating profit
2024
£m
2023
£m
Underlying EBIT
KPI
3,015 2,682
Adjusting items 23 40
Amortisation of programme, customer-related and other intangible assets,
and impairment of equity accounted investments and intangible assets (344) (116)
Netfinanceincomeofequityaccountedinvestments 59 14
Tax expense of equity accounted investments (68) (47)
Operating profit 2,685 2,573
Return on sales
Purpose
Providesameasureofoperatingprofitability,excludingone-offevents,toenablemanagementtomonitortheperformanceofrecurring
operationsovertime,andwhichiscomparableacrosstheGroup.
Definition
UnderlyingEBITasapercentageofsales.Alsoreferredtoasmargin.
2024
£m
2023
£m
Sales
KPI
28,335 25,284
UnderlyingEBIT
KPI
3,015 2,682
Return on sales 10.6% 10.6%
220
BAE Systems plc  Annual Report 2024
Alternative performance measures
Underlying earnings per share (EPS)
Purpose
ProvidesameasureoftheGroup’sunderlyingperformance,whichenablesmanagementtocomparetheprofitabilityoftheGroup’srecurring
operations over time.
Definition
Profitfortheyearattributabletoshareholders,excludingpost-taximpactofamortisationofprogramme,customer-relatedandother
intangibleassets,impairmentofequityaccountedinvestmentsandintangibleassets,non-cashfinancemovementsonpensionsandfinancial
derivatives,andadjustingitemsattributabletoshareholders,beingunderlyingearnings,dividedbynumberofsharesasdefinedforBasicEPS
in accordance with IAS 33 Earnings per Share.
Reconciliation of underlying earnings to profit attributable to equity shareholders
2024
£m
2023
£m
Underlying earnings for the year attributable to equity shareholders 2,065 1,916
Adjustments:
Adjusting items 23 40
Amortisation of programme, customer-related and other intangible assets,
and impairment of equity accounted investments and intangible assets (344) (116)
Netinterestincomeonpost-employmentbenefitobligations 20 44
Fairvalueandforeignexchangeadjustmentsonfinancialinstrumentsandinvestments 82 (66)
Tax impact of adjustments 110 39
Profit for the year attributable to equity shareholders 1,956 1,857
Reconciliation of underlying EBIT to underlying earnings
2024
£m
2023
£m
Underlying EBIT
KPI
3,015 2,682
Groupandequityaccountedinvestmentsunderlyingnetfinancecosts(seereconciliationonpage222) (396) (211)
Underlyingtaxexpense(seereconciliationonpage222) (469) (472)
Underlyingprofitfortheyear 2,150 1,999
Deduct: Non-controlling interests (85) (83)
Underlying earnings for the year attributable to equity shareholders 2,065 1,916
Weighted average number of ordinary shares used in calculating basic EPS
(note8totheConsolidatedfinancialstatements) 3,013 3,031
Underlying EPS – basic
KPI
68.5p 63.2p
Weighted average number of ordinary shares used in calculating diluted EPS
(note8totheConsolidatedfinancialstatements) 3,053 3,072
Underlying EPS – diluted 67.6p 62.4p
Adjusting items
Purpose
Toadjustitemsoffinancialperformancefromthereportedunderlyingresultswhichhavebeendeterminedbymanagementasbeingmaterial
bytheirsizeorincidenceandnotrelevanttoanunderstandingoftheGroup’sunderlyingbusinessperformance.
Definition
Adjustingitemsincludeprofitorlossonbusinesstransactions,theimpactofsubstantivelyenactedtaxratechanges,andcostsincurredwhich
areone-offinnature,forexamplenon-routinecostsorincomerelatingtopost-retirementbenefitschemes,andotheritemswhichmanagement
hasdeterminedasnotbeingrelevanttoanunderstandingoftheGroup’sunderlyingbusinessperformance.
2024
£m
2023
£m
Netprofitonbusinessdisposals 94 –
Gainrelatedtosettlementsonthepensionschemes 13 60
Acquisition and integration-related costs (72) (20)
Other (12) –
Adjusting items 23 40
221
BAE Systems plc  Annual Report 2024
GovernanceStrategic report Financial statements Additional information
Underlying net finance costs
Purpose
ProvidesameasureofnetfinancecostsassociatedwiththeoperationalborrowingsoftheGroupthatiscomparableovertime.
Definition
NetfinancecostsfortheGroupanditsshareofequityaccountedinvestments,excludingnetinterestincome/expenseonpost-employment
benefitobligationsandfairvalueandforeignexchangeadjustmentsonfinancialinstruments.
2024
£m
2023
£m
Netfinancecosts–Group (353) (247)
(Deduct)/add back:
Netinterestincomeonpost-employmentbenefitobligations (18) (41)
Fairvalueandforeignexchangeadjustmentsonfinancialinstruments (84) 57
Underlying net finance costs – Group (455) (231)
Netfinanceincome–equityaccountedinvestments 59 14
(Deduct)/add back:
Netinterestincomeonpost-employmentbenefitobligations (2) (3)
Fairvalueandforeignexchangeadjustmentsonfinancialinstruments 2 9
Underlying net finance income – equity accounted investments 59 20
Total of Group and equity accounted investments’ underlying net finance costs (396) (211)
Underlying effective tax rate
Purpose
ProvidesameasureoftaxexpensefortheGroup,excludingone-offitems,thatiscomparableovertime.
Definition
TaxexpensefortheGroupanditsshareofequityaccountedinvestments,excludinganyone-offtaxbenefit/expenserelatedtoadjusting
itemsandotheritemsexcludedfromunderlyingEBIT,asapercentageofunderlyingprofitbeforetax.
Calculation of the underlying effective tax rate
2024
£m
2023
£m
UnderlyingEBIT
KPI
(see reconciliation on page 220) 3,015 2,682
Groupandequityaccountedinvestments’underlyingnetfinancecosts(seereconciliationabove) (396) (211)
Underlying profit before tax 2,619 2,471
Grouptaxexpense (291) (386)
Tax expense of equity accounted investments (68) (47)
Exclude:
Tax (expense)/income in respect of taxable adjusting items (33) 11
Taxexpenseinrespectofotheritemsexcludedfromunderlyingprofit (77) (49)
Tax rate adjustment – (1)
Underlying tax expense (469) (472)
Underlying effective tax rate 18% 19%
Alternative performance measures continued
222
BAE Systems plc  Annual Report 2024
Alternative performance measures
Free cash flow
Purpose
ProvidesameasureofcashgeneratedbytheGroup’soperationsafterservicingdebtandtaxobligations,availableforuseinlinewith
theGroup’scapitalallocationpolicy.
Definition
Netcashflowfromoperatingactivities,includingdividendsreceivedfromequityaccountedinvestments,interestpaid,netofinterest
received,netcapitalexpenditureandfinancialinvestments,andprincipalelementsofleasepaymentsandreceipts.
Reconciliation from free cash flow to net cash flow from operating activities
2024
£m
2023
£m
Free cash flow
KPI
2,505 2,593
Add back:
Interest paid, net of interest received 413 230
Netcapitalexpenditureandfinancialinvestment 987 789
Principal element of lease payments and receipts 178 282
Deduct: Dividends received from equity accounted investments (158) (134)
Net cash flow from operating activities 3,925 3,760
Operating business cash flow
Purpose
ProvidesameasureofcashgeneratedbytheGroup’soperations,whichiscomparableacrosstheGroup,toservicedebtandmeettax
obligations,andinturnavailableforuseinlinewiththeGroup’scapitalallocationpolicy.
Definition
Netcashflowfromoperatingactivitiesexcludingtaxpaidnetofresearchanddevelopmentexpenditurecreditsreceivedandincludingnet
capitalexpenditure(netofproceedsfromfundingofassets)andleaseprincipalamounts,financialinvestmentanddividendsfromequity
accounted investments.
Reconciliation from operating business cash flow to net cash flow from operating activities
2024
£m
2023
£m
Operating business cash flow 3,093 3,218
Add back:
Netcapitalexpenditureandfinancialinvestment 987 789
Principal element of lease payments and receipts 178 282
Deduct:
Dividends received from equity accounted investments (158) (134)
Tax paid net of R&D expenditure credits received (175) (395)
Net cash flow from operating activities 3,925 3,760
Reconciliation of operating business cash flow tonet cash flow from operating activities by reporting segment
Operating business
cashflow
Deduct:
Dividends received
fromequityaccounted
investments
Add back:
Net capital expenditure,
lease principal amounts
andfinancialinvestment
Netcashflowfrom
operating activities
2024
£m
2023
£m
2024
£m
2023
£m
2024
£m
2023
£m
2024
£m
2023
£m
Electronic Systems 801 811 (11) (8) 254 158 1,044 961
Platforms & Services 732 426 (1) – 245 198 976 624
Air 1,243 1,669 (138) (112) 254 251 1,359 1,808
Maritime 436 291 (8) (7) 306 345 734 629
Cyber & Intelligence 139 204 – – 55 57 194 261
HQ (258) (183) – (7) 51 62 (207) (128)
3,093 3,218 (158) (134) 1,165 1,071 4,100 4,155
Tax paid net of R&D expenditure credits received (175) (395)
Net cash flow from operating activities 3,925 3,760
223BAE Systems plc  Annual Report 2024
GovernanceStrategic report Financial statements Additional information
Net debt (excluding lease liabilities)
Purpose
AllowsmanagementtomonitorindebtednessoftheGroup,toensuretheGroup’scapitalstructureisappropriateandcapitalallocation
policydecisionsaresuitablyinformed.
Definition
Cashandcashequivalents,lessloans(includingdebt-relatedderivativefinancialinstruments).Netdebtdoesnotincludeleaseliabilities.
Components of net debt (excluding lease liabilities)
2024
£m
2023
£m
Cash and cash equivalents 3,378 4,067
Debt-relatedderivativefinancialinstruments(net) 89 22
Loans – non-current (7,713) (4,432)
Loans – current (699) (679)
Net debt (excluding lease liabilities)
KPI
(4,945) (1,022)
Order intake
Purpose
AllowsmanagementtomonitortheorderintakeoftheGrouptogetherwithitsequityaccountedinvestments,providinginsightintofuture
years’ sales performance.
Definition
FundedordersreceivedfromcustomersincludingtheGroup’sshareoforderintakeofequityaccountedinvestments.
2024
£bn
2023
£bn
Order intake
KPI
33.7 37.7
Order backlog
Purpose
Supportsfutureyears’salesperformanceoftheGrouptogetherwithitsequityaccountedinvestments.
Definition
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.
Reconciliation of order backlog, as defined by the Group, to order book
1
2024
£bn
2023
£bn
Order backlog, as defined by the Group 77.8 69.8
Deduct:
Unfundedorderbacklog (5.3) (2.3)
Share of order backlog of equity accounted investments (16.6) (13.5)
Add back: Order backlog in respect of orders from equity accounted investments 4.5 4.0
Order book
1
60.4 58.0
1. OrderbookrepresentsthetransactionpriceallocatedtounsatisfiedandpartiallysatisfiedperformanceobligationsasdefinedbyIFRS15RevenuefromContracts
withCustomers.
Alternative performance measures continued
224
BAE Systems plc  Annual Report 2024
Alternative performance measures
Other information
Double materiality assessment
This year we conducted our first double
materiality assessment to support our
futurecompliance with the EU Corporate
Sustainability Reporting Directive, required
from 2028. As part of this, we conducted
interviews with employees, trades unions,
suppliers, customers, investors, local interest
groups and non-governmental organisations,
as well as peer reviews anddesktop research.
Output from this assessment is below,
including where to find information
onmaterial sustainability issues identified
within thisreport. Allmaterial issues are
consistent with our last materiality
assessment and are addressed within
oursustainability agenda and risk
management framework.
Material issue Signpost to Principal Risk Where can information be found in the report
Environment
1. Climate change adaptation
Identifying climate change-related risks and
adapting our operations and value chain to
addressrisk
Climate change and
environmental factors
Business interruption
CLIMATE AND THE ENVIRONMENT PAGE 49
ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE REPORT PAGE 91
2. Climate change mitigation
Identifying climate change-related risks and
mitigating risk in our operations and value chain
Climate change and
environmental factors
3. Biodiversity and ecosystems
Climate change and
environmental factors
4. Waste (hazardous/non-hazardous)
Climate change and
environmental factors
5. Pollution
Climate change and
environmental factors
Social
6. Health, safety and
employeewellbeing
Safety
OUR INVESTMENT IN OUR PEOPLE AND COMMUNITIES PAGE 24
ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE REPORT PAGE 91
7. Human capital management
People
OUR INVESTMENT IN OUR PEOPLE AND COMMUNITIES PAGE 24
ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE REPORT PAGE 91
REMUNERATION COMMITTEE REPORT PAGE 94
8. Rights of employees
People
OUR INVESTMENT IN OUR PEOPLE AND COMMUNITIES PAGE 24
ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE REPORT PAGE 91
9. Training and skills development
People
OUR INVESTMENT IN OUR PEOPLE AND COMMUNITIES PAGE 24
10. Labour rights and working
conditionsinthe supply chain
OUR RESPONSIBLE BUSINESS PAGE 48
11. Product and service
quality and safety
Safety
ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE REPORT PAGE 91
12. Information-related impacts
forend-users
Safety
Security (including cyber)
ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE REPORT PAGE 91
INNOVATION AND TECHNOLOGY COMMITTEE REPORT PAGE 93
Governance
13. Advanced technologies
andinnovations
INNOVATION AND TECHNOLOGY COMMITTEE REPORT PAGE 93
14. Responsible sales
Legal risk
AUDIT AND RISK COMMITTEE REPORT PAGE 86
ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE REPORT PAGE 91
15. Data privacy and cyber security
Security (including cyber)
PRINCIPAL RISK – SECURITY PAGE 60
16. Corporate culture
Legal risk
AUDIT AND RISK COMMITTEE REPORT PAGE 86
ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE REPORT PAGE 91
17. Responsible supply chain
Legal risk
ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE REPORT PAGE 91
18. Material and resource vulnerability
Contract risk, execution
andsupplychain
ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE REPORT PAGE 91
225BAE Systems plc  Annual Report 2024
GovernanceStrategic report Financial statements Additional information
Other information continued
Task Force on Climate-related Financial Disclosures (TCFD)
The following tables summarise our disclosures relating to the four TCFD Recommendations and 11 Recommended Disclosures pursuant
tothe UK Listing Rule 6.6.6R(8). We have considered our obligations in respect of climate-related disclosure underthe UK Listing Rules and
confirm that these disclosures are consistent with the relevant Listing Rules and the TCFD Recommendations and Recommended Disclosures
(including the implementing guidance set out in the 2021 TCFD Annex), save for – Metrics and Targets, part b. During 2024, we progressed
internal workstreams to understand the GHG emissions associated with Scope 3 data, but we are not currently ina position to disclose our
total Scope 3 emissions data. During 2025, we will continue to progress internal workstreams to better our understanding of our Scope 3
GHG emissions related to our suppliers and products and we expect to be able to report data by 2026.
Governance
Pillar/recommendation Overview Where can information be found?
Disclose the organisation’s governance around climate-related risks and opportunities
a) Describe the Board’s
oversight of climate-
related risks and
opportunities.
The Board oversees climate-related risks and opportunities in setting
overall strategy, including expenditure and investments as part of
theIBPprocess. It oversees the Nominations Committee, Audit and
RiskCommittee, Environmental, Social and Governance Committee,
Innovation and Technology Committee and Remuneration Committee.
The Board, through the Environmental, Social and Governance
Committee, ensures that appropriate climate resilience and
environmental programmes are in place and remuneration is set as
required to drive the reduction in the Group’s environmental impact.
OVERSIGHT AND MANAGEMENT OF CLIMATE-
RELATED RISK AND OPPORTUNITY PAGE 228
GOVERNANCE FRAMEWORK PAGE 74
THE WORK OF THE BOARD PAGE 76
COMMITTEE REPORTS PAGE 83
b) Describe management’s
role in assessing and
managing climate-related
risks and opportunities.
Our Executive Committee is responsible for managing climate-related
risks and opportunities and for delivering the decarbonisation
programme through our business and value chain.
Climate-related risks and opportunities are embedded across our
Operational Framework, including roles and responsibilities, key
policiesand processes.
OVERSIGHT AND MANAGEMENT OF CLIMATE-
RELATED RISK AND OPPORTUNITY PAGE 228
GOVERNANCE FRAMEWORK PAGE 74
Strategy
Pillar/recommendation Overview Where can information be found?
Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses,
strategyandfinancial planning where such information is material
a) Describe the
climate-related risks
andopportunities the
organisation hasidentified
overthe short, medium
andlongterm; and
b) Describe the impact
ofclimate-related risks
andopportunities on
theorganisation’s
businesses, strategy
andfinancial planning.
Our decarbonisation strategy supports our purpose and strategic
framework in delivering a sustainable business positioned to meet
theneeds of our customers and our people over the long term.
Itencompasses how we will decarbonise our operations and product
andservice portfolio, whilst supporting our customers and suppliers
intheir transition, as a minimum in line with a Paris-aligned pathway.
The decarbonisation strategy encompasses material climate-related
risksand opportunities that have the potential to impact our business
model and strategy over the short, medium and long term, taking into
consideration our assets and infrastructure. In putting together the
decarbonisation strategy we have considered the commitments made
bythe UK Government.
We considered the outputs from our scenario planning work and
assessed these as part of our decarbonisation strategy. We can confirm
that this strategy and our ongoing approach to business continuity
encompass the material risks and opportunities we identified through
the scenario planning process. These will continue to be monitored,
managed and, to the extent necessary, mitigated. These activities will
continue to be included within the annual business planning processes.
Our current assessment is that the financial risk associated with the
impact of climate risk on our operations is appropriately managed
andmitigated and will continue to be in the future.
OUR STRATEGIC FRAMEWORK PAGE 12
OUR BUSINESS MODEL PAGE 10
CLIMATE AND THE ENVIRONMENT PAGE 49
HOW WE MANAGE RISK PAGE 55
OUR PRINCIPAL RISKS PAGE 58
IMPACT OF CLIMATE ON THE
CONSOLIDATED FINANCIAL STATEMENTS PAGE 150
OTHER SUPPLEMENTARY INFORMATION ONLINE:
2024 CDP – BAESYSTEMS.COM/EN/SUSTAINABILITY/
SUSTAINABILITY-REPORTING
OTHER INFORMATION – SCENARIO PLANNING PAGE 229
c) Describe the resilience of
the organisation’s strategy,
taking into consideration
different climate-related
scenarios, including a 2°C
or lower scenario.
During 2021 and 2022, we progressed qualitative and quantitative
scenario planning covering physical risk and transition risk – regulation
andtechnology and transition opportunity – products.
Material climate-related risks and opportunities identified during
thoseprocesses continue to be monitored, managed and, to the extent
necessary, mitigated. We will continue to address material climate-
related risks and opportunities as part of our decarbonisation strategy.
We will be conducting scenario planning as part of our next business
review in 2025.
HOW WE MANAGE RISK PAGE 55
OUR PRINCIPAL RISKS PAGE 58
IMPACT OF CLIMATE ON THE
CONSOLIDATED FINANCIAL STATEMENTS PAGE 150
OTHER INFORMATION – SCENARIO PLANNING PAGE 229
DECARBONISING OUR OPERATIONS PAGE 49
226 BAE Systems plc  Annual Report 2024
Other information
Risk management
Pillar/recommendation Overview Where can information be found?
Disclose how the organisation identifies, assesses and manages climate-related risks
a) Describe the
organisation’s processes
foridentifying and
assessing climate-related
risks;
b) Describe the
organisation’s processes
formanaging climate-
related risks; and
c) Describe how processes
for identifying, assessing
and managing climate-
related risks are integrated
into the organisation’s
overall risk management.
Our approach to identifying, assessing and managing environmental
risks, including climate-related risk, is embedded within our approach
torisk management. Climate and environmental risks may present as
financial or non-financial risks depending on the extent to which their
impacts can be quantified, andhow they have been classified.
Climate and environmental risk is addressed within the Group’s
principalrisks – climate change and environmental factors; business
interruption; and legal risk (seepages63 to 65).
Current and emerging regulations are considered as part of the
environmental management system, including energy-related
taxesandschemes.
OVERSIGHT AND MANAGEMENT OF CLIMATE-
RELATED RISK AND OPPORTUNITY PAGE 228
HOW WE MANAGE RISK PAGE 55
OUR PRINCIPAL RISKS PAGE 58
Metrics and targets
Pillar/recommendation Overview Where can information be found?
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where
suchinformationismaterial
a) Disclose the metrics used
by the organisation to
assess climate-related risks
and opportunities in line
with its strategy and risk
management process.
We reviewed the TCFD Guidance on Metrics, Targets and Transition
Plansand the cross-industry metric categories included in that document.
We report against the following cross-industry metrics:
GHG emissions – absolute Scope 1 and 2 emissions and carbon intensity
measure.
Capital deployment – disclosure within ‘impact of climate ambitions
onthe consolidated financial statements’.
Remuneration – 10% ESG weighting for ESG metrics in the Performance
Share metric.
We disclose revenue from alternative energy-related products within
ourAnnual Report (see Power & Propulsion on page 39)
andSustainability Accountability Standards Board (SASB) disclosure
–Resource Transformation: Aerospace & Defence sector disclosure.
We disclose our energy consumption within our Annual Report.
Wealsodisclose other key environmental metrics – waste production
andelectricity consumption.
We disclose our investment in R&D within our Annual Report (see page 11).
REMUNERATION COMMITTEE REPORT PAGE 94
IMPACT OF CLIMATE ON THE
CONSOLIDATED FINANCIAL STATEMENTS PAGE 150
OTHER SUPPLEMENTARY INFORMATION ONLINE:
SUSTAINABILITY ACCOUNTING STANDARDS BOARD
(SASB) DISCLOSURE | SUSTAINABILITY REPORTING
| SUSTAINABILITY | BAE SYSTEMS
b) Disclose Scope 1,
Scope2 and, if
appropriate, Scope 3
GHGemissions and
therelated risks.
We report our absolute GHG Scope 1, 2, 3 (employee and business travel
only) emissions in line with Streamlined Energy and Carbon Reporting
(SECR) regulations. This data is externally assured, to a limited level of
assurance, by Deloitte LLP.
During 2025, we will continue to progress our internal workstreams to
better our understanding of our Scope 3 GHG emissions related to our
suppliers and products and we expect to be able to report data by 2026.
KEY PERFORMANCE INDICATORS PAGE 14
VALUE CHAIN PAGE 50
GHG EMISSIONS AND METHODOLOGY PAGE 231
c) Describe the targets
used by the organisation
to manage climate-related
risks and opportunities
andperformance
againsttargets.
Our near-term target is to reduce GHG emissions across our operations
(Scopes 1 and 2) by 2030, reducing operational emissions by4.2%
year-on-year in line with a Paris-aligned pathway. We have achieved a
6.0%¹ GHG emissions reduction in 2024. Post the integration ofSMS into
our environmental data systems during late 2024, in line withour GHG
basis of reporting and methodology statement during 2025 we will be
recalculating our 2020 GHG emissions baseline, to include the GHG
emissions of this business.
Our long-term target is to work towards net zero across our value chain
by 2050.
REMUNERATION COMMITTEE REPORT PAGE 94
1. SMS business data is excluded.
227BAE Systems plc  Annual Report 2024
GovernanceStrategic report Financial statements Additional information
Other information continued
BAE Systems Board
Quarterly
Overall responsibility for climate-related risks and opportunities impacting the Group, including consideration of climate-related
matters whensetting the Group’s strategy. The Board is supported by a number of Committees, as shown below.
Nominations
Committee
Ensures the Board
retains the required
skills and experience,
including climate-
related matters.
Businesses/sectors
Each business/sector has climate and environment leads who progress the decarbonisation ambitions of each business/sector.
Sustainability Council
Monthly
Reports to the Group ESG, Culture & Business Transformation
Director, providing recommendations for areas of sustainability
tobe given priority and focus as well as supporting the sectors
inimplementation of the Group’s sustainability agenda.
Climate and Environment Working Group
Monthly
Reports to the Director Environment, Climate & Infrastructure
andcoordinates the progression of our decarbonisation ambitions.
The Group is made up of functional representatives, business leads
and environmental specialists.
Executive Committee
Monthly
Responsible for managing climate-related risks and opportunities for delivering the decarbonisation strategy,
including climate-related expenditure and investments.
Our Group ESG, Culture & Business Transformation Director, who has day-to-day responsibility for environmental issues
and ownership of the Group’s Environmental policy, sits on the Executive Committee and provides the Committee
with regular updates on our environmental and decarbonisation strategy.
Audit and Risk
Committee
Reviews and approves
TCFD disclosures,
including analysis of
any financial impact of
climate-related risks.
Environmental, Social
and Governance
Committee
Oversees the Group’s
ESG performance,
including review of
progress against
objectives and targets.
Innovation
and Technology
Committee
Oversees the Group’s
ability to make
technological
advancements through
low- or zero-emission
technologies.
Remuneration
Committee
Determines the Group’s
Remuneration policy,
including performance
conditions linked to
climate change and
ESG-related matters.
Core Business Processes and Policies
Quarterly Business Review
Quarterly
Management review of the performance of each of the Group’s
businesses against decarbonisation objectives and targets.
Integrated Business Plan (IBP)
Annual
Annual long-term strategy review and five-year plan for each
sector,including investment case to decarbonise.
Chief Executive’s Business Review
Quarterly
Top-level review of progress against decarbonisation
strategy and key sector deliverables.
Business Risk
Annual
The identification, analysis, evaluation and mitigation of
businessrisks, including those relating to the environment
andclimate change.
How we manage climate-related risks and opportunities
READ MORE PAGE 83 READ MORE PAGE 86 READ MORE PAGE 91 READ MORE PAGE 93 READ MORE PAGE 94
228 BAE Systems plc  Annual Report 2024
Other information
Scenario planning – material climate-related risk and opportunity
Physical risk
Materiality of risk or opportunity/
timeframe
1
Short, medium and long term
Description Unmitigated potential impact Business readiness
We have assessed the future physical risk of
extreme weather on 140 priority sites globally.
We have operations in more than 40 countries,
witha focus in the UK, US, the Kingdom of
SaudiArabia and Australia; therefore, our
operational exposure to physical risks is
diverseand varies by region.
Risks have been quantified for seven hazards
infuture periods to 2100 under three scenarios.
Unmitigated damage and disruption losses have
been financially quantified for 140 priority sites.
The impact of the physical risks of climate
change, such as increasing frequency and
severityof extreme weather events, will
affect BAE Systems’ operations and vary
depending on the particular hazard and
geography. Overall, extreme weather
events are likely to result in repair costs,
adaptation investments and reductions
in productivity.
Financial impact
Low
We currently assess the physical locations of our global sites
against physical risk of extreme weather events. This includes
risk engineering reviews at site level and a quantification of
current potential financial impacts.
Any mitigation actions arising from these assessments are
included within the sector IBP.
Our mitigation work is also supported by work underway
andplanned by central and local government departments
within the countries and counties/states that we have
facilities in.
Transition risk – regulation
Materiality of risk or opportunity/
timeframe
1
Medium term
Description Unmitigated potential impact Business readiness
We have assessed the transition risk of tightening
environmental laws and regulations in relation
tocarbon pricing globally. Carbon pricing is
anapproach used to reduce carbon emissions
through market mechanisms. It passes the
societal cost of climate change from the
emissions of GHGs back to the organisations
responsible for emitting them. As a result, it
hasthe purpose of discouraging the use of
GHG-emitting activities in order to protect
theenvironment, address the causes of climate
change, and meet national and international
climate agreements. Carbon pricing instruments
can take many forms, with the most common
being carbon taxes, taxes on fuels, and trading
schemes/levies.
The cost of carbon to 2050 was calculated
usingScope 1 and 2 measured emissions.
Thiswas performed using prices modelled
inthree International Energy Agency (IEA)
transition scenarios: STEPS, Announced Pledges
Scenario (APS)andNet Zero Emissions (NZE)
(seepage 230). The cost ofcarbonassumes
a100% passthrough fromenergy suppliers,
andhas been analysed under two pathways:
(a)static emissions; and(b)decarbonisation
tonet zero by 2050.
Carbon pricing has the potential to
increase operational costs via carbon
taxes and levies to the business for
energy and fuel use; and indirect taxes
which are passed to the Group through
purchased energy.
Financial impact
Low
Our decarbonisation strategy and operational low carbon
pathway will lower our exposure to carbon taxes.
We will continue to monitor environmental lawsand
regulations in relation to carbon pricing, including any
potential financial impacts on the Group.
1. Short- (less than two years), medium- (three to ten years) and long-term (beyond ten years) time horizons. Time horizons are linked to the IBP process.
Climate scenario planning
We use climate scenarios to assess the
resilience of our business, decarbonisation
strategy and our approach to managing
climate-related risk and opportunities
including the impact on our financial results.
Climate scenarios demonstrate different
possible futures, based on expert peer
reviewed projections, but they are not
forecasts. They are designed for companies
totest their business resilience against a
range of different future states to inform
strategic decision-making. Scenario analysis
isa necessary exercise to understand what
parts of the business are exposed to and
impacted by climate change.
Climate change and nature-related risks
andopportunities extend beyond normal
business strategic planning cycles and have
the potential to impact BAE Systems over
short- (less than two years), medium-
(threeto ten years) and long-term
(beyondten years) time horizons.
During 2022, we built upon our qualitative
scenario planning work that we commenced
during 2021, by progressing material
physicalrisk and transition risks quantification
and continuing qualitative analysis on
transition opportunities.
Materiality of risk and opportunities was
based on the likelihood of occurrence and
potential impact on the Group. For each area,
we identified sub-risks and opportunities
forquantification. Analysis of these risk and
opportunity areas has helped BAE Systems
tounderstand the scale of the unmitigated
impact, through the development of a
methodology and calculation of the possible
financial impact.
We anticipate revisiting our scenario
planning as part of our next business review
in 2025.
229
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Other information continued
We have used the following key assumptions within our scenarios:
Assumption Rationale
No action is taken by BAE Systems to mitigate
orlimit the impacts of each risk being assessed.
Uncovers what the implications are if climate risks
are left unmitigated to help facilitate a response
plan. These results can be used by the business
to test whether current mitigation is sufficient.
Mutual exclusivity is applied to the scenarios
andunderlying climate attributes (i.e. impacts
are not aggregated or offset).
Ensures that no impacts are cancelled out.
Wedonot assess scenarios where both
transitions risks and physical risks take place
atthe same time (although this is inevitable).
Business activities are static over the future
period (revenue streams, operating model,
emissions, etc).
Isolates the climate element of the risks to
showimplications on strategy in a world
wherebusiness as usual remains.
For transition risks and opportunities,
IEAscenario data has been used, due to its
relevance to the Group’s decarbonisation
strategy, global and regional coverage,
timeframes considered and information on
drivers and frequency of scenario updates.
1.5°C Net Zero Emissions scenario (NZE)
Source: IEA Net Zero Economy by 2050
Announced Pledges Scenario (APS)
Source: IEA Announced Pledges Scenario
Stated Policies Scenario (STEPS)
Source: IEA Stated Policies Scenario
Transition risk – technology
Materiality of risk or opportunity/
timeframe
1
Medium to long term
Description Unmitigated potential impact Business readiness
In the UK, nearly half of BAE Systems’ emissions
come from heating buildings. To support the
decarbonisation of our heating systems over
thelong term, we could consider switching to
lower-emissions heating technology.
The decarbonisation of energy for heating
poses a challenge, as most cost-effective
solutions are currently expensive and subscale.
This could result in increased costs arising from
the need to replace existing plant and
equipment to incorporate lower-emissions
technologies, such as heat pumps.
We have reviewed the roll-out of heat pumps
asapotential option to replace current gas-fired
heating systems and this was assessed under
three IEApricing scenarios to 2050.
Introducing alternative energy sources
such as renewable energy-powered heat
pumps will lower our emissions, but at
this point would require significant capital
expenditure to retrofit our sites and
install the devices. Due to the difficulties
of switching fuels and maintaining
legacy systems, installing heat pumps is
considered one of the best transition
solutions over the long term. This is
because heat pumps are more efficient
than other heating systems inproducing
more heat energy than the amount of
electricity consumed.
Heat pump technology is currently
expensive, as the technology and market
is still developing.
Financial impact
Low
In the UK, we have considered the feasibility of introducing
renewable energy-powered heat pumps over the long term,
as part of the decarbonisation strategy.
We will continue to monitor the development of lower-
emissions heating technology, over the long term, as a way
tosupport reducing the GHG emissions of our operations.
Transition opportunity – products
Materiality of risk or opportunity/
timeframe
1
Medium
Description Unmitigated potential impact Business readiness
The transition to a low carbon economy presents
opportunities for BAE Systems, and continued
innovation will be required to provide solutions
toexisting and new customer bases.
Our ability to increase revenues will
bedependent on applying advanced
engineering capabilities to develop new
products that support lower-emissions
requirements, creating new business
lines and enhancing competitive
positions in order to retain and grow
market share. Continued investment,
both Group- and customer-funded,
inR&D will be required.
To decarbonise by 2050, we must ensure that our products
and services support a decarbonisation pathway. This will
beachieved by advancing the efficiency of our products
andservices, in the short term, and transitioning to lower-
orzero-emissions products and technology longer term.
Thiswill require continued investment in our R&D activities.
We have been engaging with our customers to understand
their decarbonisation pathways including the challenges
they face regarding operational effectiveness and availability.
Many customers are setting targets and looking for
lower-carbon sustainable products. We are working to
understand and influence their futurerequirements to help
inform and shape product innovation and development.
Sustainable fuels will help facilitate our product and service
decarbonisation pathway over the long term.
BAE Systems can use the market presence and brand
recognition for its electric and hybrid propulsion systems
portfolio developed through the well-established urban transit
bus products, by leveraging and transitioning this expertise
to other, emerging and nascent markets such as aviation,
maritime and heavy industrial transport vehicle markets.
230 BAE Systems plc  Annual Report 2024
Other information
Greenhouse gas (GHG) emissions data
Absolute energy consumption
2024
1
2023
Global
2
kWh
UK
kWh
Global
kWh
UK
kWh
Energy consumption
Scope 1 and 2 1,378,244,469 542,330,247 1,315,552,368 534,961,834
GHG emissions data
1
2024 2023
Scope definition
Global
2
tonnes
CO
2
e
UK
tonnes
CO
2
e
Global
tonnes
CO
2
e
UK
tonnes
CO
2
e
1 Emissions from activities which
BAESystemsowns orcontrols (Scope 1) 104,948 52,662 107,360 54,204
2 Emissions from the electricity and steam
purchased for BAESystems’ use(Scope 2
– location-based) 267, 202 57,616 243,457 54,456
Total gross Scope 1 and 2 emissions 372,150 110,278 350,817 108,660
3 Emissions from employee business travel
(Scope 3) 122,383 54,880 114,030 44,261
GHG emissions per employee
2024
1
2023
Global
tonnes
CO
2
e
UK
tonnes
CO
2
e
Global
tonnes
CO
2
e
UK
tonnes
CO
2
e
Per each full-time equivalent employee
(Scope1 and 2) 3 2 4 3
1. Relevant reporting period 1 January 2024
to31 December 2024. The GHG emissions data
includes the SMS business and its associated
GHGemissions. Comparative information covers
the reporting period from 1 November 2022 to
31 October 2023 and excludes the SMS business
and its associated GHG emissions.
2. Deloitte has provided independent limited
assurancein accordance with the International
Standard for Assurance Engagements 3000
(ISAE3000) and Assurance Engagements on
Greenhouse Gas Statements (ISAE 3410) issued
bythe IAASB over the selected metrics identified
with a
2
. Deloitte’s full unqualified assurance
opinion, which includes details of theselected
metrics assured, can be found atbaesystems.com/
annual-report
To see our Basis of Reporting 2024 visit
baesystems.com/annual-report
Climate scenarios and data used
For physical risk, TCFD scenario analysis guidance recommends analysing at least three different climate scenarios to ensure a broad range
ofoutcomes are considered. Each scenario causes different levels of future physical risk, and resulting losses. This enables the user to draw
comparisons between the scenarios and the level of risk and subsequent damage and disruption for future periods. We have focused on
theworst-case scenario (SSP 5 – RCP 8.5)
1
in the analysis below, as this presents the most risk to our operations.
Physical risk scenario Intergovernmental Panel on Climate Change trajectory alignment Scenario policy action
>4°C SSP 5 – RCP 8.5
1
Temperature rise by 2100: 4.4°C
No additional policy action
2–3°C SSP 2 – RCP 4.5
1
Temperature rise by 2100: 2.7°C
Late policy action
<2°C SSP 1 – RCP 2.6
1
Temperature rise by 2100: 1.8°C
Early policy action
1. Shared Socioeconomic Pathway (SSP). Representative Concentration Pathway (RCP).
231BAE Systems plc  Annual Report 2024
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Other information continued
Methodology
Greenhouse gas emissions data is reported
inline with an operational control method,
weuse the Greenhouse Gas Protocol Corporate
Accounting and Reporting Standard as
guidanceto support our approach to reporting.
Our reporting boundary for Streamlined Energy
and Carbon Reporting (SECR) is the same as
ourreporting boundary for the purposes of
ourfinancial statements. Data covers a 12-month
period between the 1 January 2024 to
31 December 2024. Pro-rated methods have
been used where data does not cover the full
12 month period. The GHG protocol allows
participants to arrange their organisational
boundaries using two different methodologies.
One using the equity share or two the control
approach. The business has chosen to use the
control approach. Furthermore, the control
approach selected allows for two further
methodologies to be applied; to define control
either a financial approach or operational
approach. The business uses the latter.
As a business we utilise a tool called the Global
Property Database (GPD) to record and monitor
locations which we either own or lease. Every
location listed on the GPD for the purpose of
GHG emissions reporting falls within our
organisational boundary, we do not report
emissions from all these locations as some fall
outside of our operational boundary. We assess
each location using defined criteria to determine
operational control. More information is
available in the basis of reporting.
Regional specific emissions factors are utilised
where available to convey emission. Where
regional emissions factors are not available
emissions factors associated with fuel
consumption utilise those published by the
Department for Business Energy & Industrial
Strategy in the United Kingdom.
Emissions factors for electricity consumed by
commercial locations in the United States are
published by the United States Environmental
Protection Agency (US EPA). The most up to date
Emissions and Generation Resource Integrated
Database (eGRID) factors published by US EPA
for the 2024 reporting cycle are from the year
2022. Emissions factors associated with the
consumption of fuels in the United States are
published by the GHG Protocol.
Emissions factors for both electricity and natural
gas consumption in Australia are published by
the Department of Climate Change, Energy,
theEnvironment and Water. Emission factors
forSweden’s (SWE) natural gas are published
athttps://unfccc.int/documents/224123
andelectricity European Residual Mix | AIB
(aib-net.org).
Electricity emission factors for Saudi Arabia
(KSA), Sweden, all other international locations
and residential locations in the United States
andare published at Emissions Factors 2024
–Data product – IEA.
For this reporting cycle, the 2024 UK Government
emissions factors published by the Department
for Business, Energy and Industrial Strategy
(BEIS)have been used for majority of Scope 1
and 3 calculations.
Emissions factors published by both the
UKGovernment department for Business Energy
and Industrial Strategy and the US EPA, are
presented as CO
2
e they cover all six applicable
greenhouses gases listed under the Kyoto
Protocol. For further information on the
inclusion of HFC’s in the reported inventory,
please refer to the section on fugitive emissions.
The Scope 2 Greenhouse Gas Emissions
associated with the GHG Protocol ‘Market-
Based’ method are calculated in line with the
GHG Protocol Guidance, using residual-mix
emission factors where available for our UK,
USand Swedish operations. In our other
significant operating regions, residual mix
emission factors are either unavailable or
theresulting absolute emissions at group level
are within the margin of error and therefore
country-specific emissions factors have been
used in line with the GHG Protocol Guidance.
Ifsites consume grid electricity backed by
Renewable Energy Guarantee of Origin
(REGOs),this has been taken into consideration
within the calculations.
Greenhouse gas emissions related to business
travel include air travel data for the majority
ofthe global business, rail data for business
unitsoperating in the UK and US, and vehicle
(including hire car, company car and personal
car) data for business units operating in the
UK,US and Australia. These data sets are taken
from suppliers’ procurement records.
The principal record of the Group’s worldwide
facilities is its legal department’s Global Property
Database. The database holds records of all
locations which are either wholly owned, leased
or licensed sites.
Greenhouse gas emissions are primarily
calculated from energy consumption records,
eginvoiced data or meter reads. For the UK
&International businesses, these are reported
via the Group’s global environmental database
(CR Desktop). Data related to the US business is
provided for internal use quarterly along with
full annual data submission. Where consumption
records are not available estimates may be used
and these will be highlighted in the database.
Where actual usage data is not available for
facilities and residences within the Global
Property Database, an estimated consumption
isused this is either based on the type and size
ofthe building, if no information is available
onthe size of the building a default benchmark
factor or alternative estimation method is used.
If a business or facility has closed between
quarter 4 of the previous year and quarter 3
ofthe current year, it will not be included within
the reporting boundary. Any locations which
close in quarter 4 of the reporting year will be
removed from reporting boundary in the next
full reporting year after the change.
Emissions from non-wholly owned subsidiaries
are included in the dataset if BAE Systems have
operational control at the location. They are
accurate as of 31 December 2024 and reflect
locations in operation at that time. For the
majority of these locations the joint venture
either operates from one of our CR Desktop
reporting locations or are included in
benchmarked estimates. Some listed companies
were previously described as dormant in 2023
and remain dormant in 2024. For the purposes
of calculating emissions, we have excluded
dormant companies as it has been assumed
thatthey do not consume energy.
Equity accounted investments and other
investments detailed in the annual report
arenot currently included, these investments
represent BAE Systems Scope 3 emissions.
Emissions from pension scheme properties
notoccupied by the group are not included.
Trading of emissions are not taken into account
for the purposes of reporting, for example
where the business has a requirement to
maintain compliance with trading schemes,
egUK ETS, the total energy consumed is
reported regardless of emissions trading.
The Scope 2 Greenhouse Gas Emissions
associated with the GHG Protocol
‘Market-Based’ method have been calculated
as226,107 tCO
2
e. In line with the GHG Protocol
Guidance, using residual-mix emission factors
where available for our UK, US and Swedish
operations. In our other significant operating
regions, residual mix emission factors are either
unavailable or the resulting absolute emissions
at group level are within the margin of error
andtherefore country-specific emissions factors
have been used in line with the GHG Protocol
Guidance. If sites consume grid electricity backed
by Renewable Energy Guarantee of Origin
(REGOs), this has been taken into consideration
within the calculations.
1. Deloitte has provided independent limited assurance in accordance with the International Standard for Assurance Engagements 3000 (ISAE3000) and
AssuranceEngagements on Greenhouse Gas Statements (ISAE 3410) issued bythe IAASB over theselectedmetrics identified with a
1
. Deloitte’s full unqualified
assurance opinion, which includes details of the selected metrics assured, can be found atbaesystems.com/annual-report.
232 BAE Systems plc  Annual Report 2024
Other information
Glossary
A
ACV Amphibious Combat Vehicle
ADR American Depositary Receipts
AGM Annual General Meeting
AI Artificial Intelligence
AMPV Armored Multi-Purpose Vehicle
APKWS Advanced Precision Kill Weapon System
APM Alternative Performance Measure
APS Announced Pledges Scenario
AUKUS Trilateral agreement between Australia,
theUKandthe US
B
BAESRSP BAE Systems Retirement Savings Plan
BEC Bose-Einstein Condensate
BEIS Business, Energy and Industrial Strategy
C
C4ISR Command, Control, Communications, Computers,
Intelligence, Surveillance and Reconnaissance
C5ISR Command, Control, Computers, Communications,
Cyber, Intelligence, Surveillance and Reconnaissance
CAMM Common Anti-Air Module Missiles
Capex Capital Expenditure
CGU Cash-Generating Unit
CMI Continuous Mortality Investigation
CPI Consumer Prices Index
CRR Corporate Reporting Review
CSC Canadian Surface Combatant
CTIO Chief Technology & Information Officer
D
DEI Diversity, Equity and Inclusion
DRIP Dividend Reinvestment Plan
DSEI event Defence and Security Equipment International Event
DTR Disclosure Guidance and Transparency Rule
E
EBIT Earnings before Interest and Tax
eGRID Emissions and Generation Resource
IntegratedDatabase
EPA Environmental Protection Agency
EPS Earnings per Share
ERP Enterprise Resource Planning
ES Electronic Systems
ESG Environmental, Social and Governance
ESOP Employee Share Option Plan
EW Electronic Warfare
ExSOP Executive Share Option Plan
F
FCA Financial Conduct Authority
FCF Free Cash Flow
FIFO First in first out
FRC Financial Reporting Council
FRS Financial Reporting Standard
233
BAE Systems plc  Annual Report 2024
GovernanceStrategic report Financial statements Additional information
Glossary continued
G
GAAP Generally Accepted Accounting Principles
GCAP Global Combat Air Programme
GeoXO Geostationary Extended Observations
GHG Greenhouse gas
GPD Global Property Database
H
HCFP Hunter Class Frigate Programme
I
IAASB International Auditing and Assurance
StandardsBoard
IAS International Accounting Standard
IBP Integrated Business Plan
IEA International Energy Agency
IFRS International Financial Reporting Standard
IPO Initial Public Offering
IRS Internal Revenue Service
ISAE International Standard for Assurance Engagements
ISAs (UK) International Standards on Auditing (UK)
ISC Integration Support Contract
IT Information Technology
J
JORN Jindalee Operational Radar Network
JOSCAR Joint Supply Chain Accreditation Register
K
KPI Key Performance Indicator
KSA Kingdom of Saudi Arabia
L
LCM Lifecycle Management
LLM Large Language Models
LTI Long-Term Incentive
LTIP Long-Term Incentive Plan
M
MES Marconi Electronic Systems
MoD Ministry of Defence
MSR Minimum Shareholding Requirement
MVL Members’ Voluntary Liquidation
N
NGAA NextGeneration Adaptable Ammunition
NGMS Next Generation Munitions Solution
NOAA National Oceanic and Atmospheric Administration
NZE Net Zero Emissions Scenario
O
OAS Operational Assurance Statement
OCF Operating Cash Flow
P
PBGC Pension Benefit Guaranty Corporation
PPA Power Purchase Agreements
PSP Performance Share Plan
234
BAE Systems plc  Annual Report 2024
Glossary
R
R&D Research and Development
RBSL Rheinmetall BAE Systems Land
RCF Revolving Credit Facility
RCP Representative Concentration Pathway
REGO Renewable Energy Guarantee of Origin
ROCE Return on Capital Employed
ROW Rest of World
RPI Retail Prices Index
RSP Restricted Share Plan
S
SASB Sustainability Accountability Standards Board
SCOD Sovereign Capability and Option Deed
SDG Sustainable Development Goal
SECR Streamlined Energy and Carbon Reporting
SID Senior Independent Director
SIP Share Incentive Plan
SIPS Shipbuilding Industries Pension Scheme
SME Small and medium-sized enterprise
SMS Space & Mission Systems
SSA Special Security Agreement
SSP Shared Socioeconomic Pathway
STEM Science, Technology, Engineering and Mathematics
STEPS Stated Policies Scenario
T
TCFD Task Force on Climate-related Financial Disclosures
TSR Total Shareholder Return
U
UAS Uncrewed Air System
W
WTW Willis Towers Watson
235
BAE Systems plc  Annual Report 2024
GovernanceStrategic report Financial statements Additional information
Shareholder information
Registered office
6 Carlton Gardens
London
SW1Y 5AD
United Kingdom
Telephone: +44 (0)1252 373232
Company website: baesystems.com
Registered in England and Wales, No. 01470151
Registrars
Equiniti Limited (0140)
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
United Kingdom
If you have any queries regarding your shareholding or need to notify
any changes to your personal details, please contact Equiniti.
Equiniti’s website (help.shareview.co.uk) includes a comprehensive
set of answers to many frequently asked questions relating to managing
a shareholding. If you cannot find the answer to your question, there
isan online email form, which will help to ensure your question is
directed to the most appropriate team for a response. Alternatively,
youcan call the BAE Systems Helpline on 0371 384 2044 or, from
outside the UK, +44 371 384 2044. Lines are open from 8.30am
to5.30pm Monday to Friday, excluding UK bank holidays.
In addition, the following services are offered to shareholders:
– Shareview – online access to your shareholding, including
balancemovements, indicative share prices and information
onrecent payments.
– Dividend mandates – have your dividends paid directly into
eitheryour UK bank/building society account or an overseas
bankaccount.
– Dividend reinvestment plan (DRIP) – a DRIP is provided by
Equiniti Financial Services Limited. The DRIP enables the Company’s
shareholders to elect to have their cash dividend payments used
topurchase the Company’s shares. More information can be
foundat shareview.co.uk/info/drip.
More information on all these services can be found on Equiniti’s
website (shareview.co.uk).
American Depositary Receipts
BAE Systems plc American Depositary Receipts (ADRs) are traded
onthe over-the-counter market under the symbol BAESY. OneADR
represents four BAE Systems plc ordinary shares.
JP Morgan Chase Bank N.A. is the depositary. If you should have
anyqueries please contact:
JP Morgan Chase Bank N.A.
PO Box 64504
St Paul
MN 55164-0504, USA
Email: jpmorgan.adr@eq-us.com
Telephone (toll free from within US and Canada): +1 800 990 1135
Telephone from outside US and Canada: +1 651 453 2128
ShareGift
ShareGift, the share donation charity (registered charity number
1052686), accepts donations of small parcels of shares which may
beuneconomic to sell. Details of the scheme are available from
ShareGift at sharegift.org, by telephone on 020 7930 3737
orbyemail: help@sharegift.org
Share price information
The middle market price of the Company’s ordinary shares on
31December 2024 was 1,149p and the range during the year was
1,109pto1,417p.
For more information
Visit the Shareholder information section of our website:
investors.baesystems.com
Financial calendar
1
Annual General Meeting 7 May 2025
2024 final ordinary dividend payable 2 June 2025
2025 half-yearly results announcement 31 July 2025
2025 interim ordinary dividend payable 1 December 2025
2025 full-year results:
– preliminary announcement
– Annual Report
February 2026
March 2026
2025 final ordinary dividend payable June 2026
1. These dates are indicative and subject to change.
Spot the warning signs
Fraudsters will often:
– contact you out of the blue;
– apply pressure to invest quickly;
– downplay the risks to your money;
– promise tempting returns that sound too good to be true; and
– say that they’re only making the offer available to you or
evenaskyou to not tell anyone else about it.
If you’re suspicious, report it
You can report the firm or scam to the FCA by contacting
theirConsumer Helpline on 0800 111 6768 or using the
reportingform using the link shown below.
If you’ve lost money in a scam, contact Action Fraud
on03001232040 or www.actionfraud.police.uk
How to avoid investment scams
Reject unexpected offers
Scammers usually cold call, but contact can also come
byemail, post,word of mouth or at a seminar. If you’ve
been offered an investment out of the blue, chances
areit’s a high-risk investment orascam.
Check the FCA Warning List
Use the FCA Warning List to check the risks of a
potential investment – you can also search to see if the
firm is known to be operating without its authorisation.
Get impartial advice
Get impartial advice before investing – don’t use an
adviser from thefirm that contacted you.
Beware of share fraud
Investment scams are often sophisticated and difficult to spot.
Be ScamSmart and visit
www.fca.org.uk/scamsmart
236 BAE Systems plc  Annual Report 2024
Shareholder information
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 plc
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, appear in a number of places throughout this
document and include statements regarding the intentions, beliefs or current expectations of BAE Systems
plc concerning, amongst other things, its results in relation to operations, financial condition, liquidity,
prospects, growth, commitments and targets (including environmental, social and governance commitments
and targets), strategies and the industry in which it operates. Forward-looking statements can be
identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “intends”, “will”,
“will continue”, “should”, “would be”, “seeks”, “anticipates” or similar expressions or the negative thereof
orother variations thereof or comparable terminology. By their nature, forward-looking statements involve
risks and uncertainties because they relate to events and depend on circumstances that may or may not
occur in the future.
Forward-looking statements are not guarantees of future performance and the actual results of operations,
financial condition and liquidity of BAE Systems plc, the development of the industry in which it operates
and the ability of BAE Systems plc to meet its commitments and targets may differ materially from those
made in or suggested by the forward-looking statements contained in this document. In addition, even
ifresults of operations, financial condition and liquidity of BAE Systems plc, the development of the
industry in which it operates and/or performance against commitments and targets are consistent with
theforward-looking statements contained in this document, those results, developments or performance
may not be indicative of results, developments or performance in subsequent periods.
These forward-looking statements speak only as of the date of this document. Subject to the requirements
of the Disclosure Guidance and Transparency Rules, the Market Abuse Regulation or applicable law,
BAESystems plc explicitly disclaims any intention or obligation or undertaking publicly to release the result
of any revisions to any forward-looking statements in this document that may occur due to any change in
its expectations or to reflect events or circumstances after the date of it. All subsequent written and oral
forward-looking statements attributable to either BAE Systems plc or to persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements referred to herein and contained
elsewhere in this document.
BAE Systems plc and its directors accept no liability to third parties in respect of this document save as
would arise under English law. Accordingly, any liability to a person who has demonstrated reliance on
anyuntrue or misleading statement or omission shall be determined in accordance with Schedule 10A
ofthe Financial Services and Markets Act 2000. It should be noted that Schedule 10A and Section 463
ofthe Companies Act 2006 contain limits on the liability of the directors of BAE Systems plc so that their
liability is solely to BAE Systems plc.
Website references
None of the websites referred to in this document (including where a link is provided), and none of the
information contained on such websites, are incorporated by reference into this document.
Printed by Park Communications on FSC
®
-certified paper.
Park works to the EMAS standard and its Environmental Management Systemiscertified to ISO 14001.
100% of the inks used are vegetable oil based, 95% of press chemicals arerecycled for further use and,
onaverage, 99% of any waste associated withthisproduction will be recycled.
This document is printed on materialcontaining 100% recycled paper.
This is a certified climate neutral print product for which carbon emissions havebeen calculated and offset by
supporting recognised carbon offset projects. The carbon offset projects are audited and certified according
to international standards and demonstrably reduce emissions. The climate neutral label includes a unique
ID number specific to this product which can be tracked at www.climatepartner.com, giving details of the
carbon offsetting process including information on the emissions volume and the carbon offset project
being supported.
Designed and produced by Radley Yeldar.
BAE Systems plc
6 Carlton Gardens
London
SW1Y 5AD
United Kingdom
T +44
(
0
)
1252 373232
baesystems.com
Registered in England and Wales, No. 01470151
© BAE Systems plc 2025. All rights reserved
BAE SYSTEMS is a registered trade mark of BAE Systems plc.
Independent auditor’s reasonable assurance report to the Members of BAE Systems plc on the
compliance of the Electronic Format Annual Financial Report with Financial Conduct Authority
(FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.15R-DTR 4.1.18R
Report on compliance with the requirements for iXBRL mark up (‘tagging’) of consolidated
financial statements included in the Electronic Format Annual Financial Report
We have undertaken a reasonable assurance engagement on the iXBRL mark up of consolidated
financial statements for the year ended 31 December 2024 of BAE Systems plc (the “company”)
included in the Electronic Format Annual Financial Report prepared by the company.
Opinion
In our opinion, the consolidated financial statements for the year ended 31 December 2024 of the
company included in the Electronic Format Annual Financial Report, are marked up, in all material
respects, in compliance with DTR 4.1.15R-DTR 4.1.18R.
The directors’ responsibility for the Electronic Format Annual Financial Report prepared in
compliance with DTR 4.1.15R-DTR 4.1.18R
The directors are responsible for preparing the Electronic Format Annual Financial Report. This
responsibility includes:
• the selection and application of appropriate iXBRL tags using judgement where necessary;
• ensuring consistency between digitised information and the consolidated financial
statements presented in human-readable format; and
• the design, implementation, and maintenance of internal control relevant to the application
of DTR 4.1.15R-DTR 4.1.18R.
Our independence and quality control
We have complied with the independence and other ethical requirements of Financial Reporting
Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
We apply International Standard on Quality Monitoring (ISQM) 1 and, accordingly, maintain a
comprehensive system of quality control including documented policies and procedures regarding
compliance with ethical requirements, professional standards and applicable legal and regulatory
requirements.
Our responsibility
Our responsibility is to express an opinion on whether the iXBRL mark up of consolidated financial
statements complies in all material respects with DTR 4.1.15R-DTR 4.1.18R based on the evidence we
have obtained. We conducted our reasonable assurance engagement in accordance with
International Standard on Assurance Engagements (UK) 3000, Assurance Engagements Other than
Audits or Reviews of Historical Financial Information (‘ISAE (UK) 3000’) issued by the FRC.
A reasonable assurance engagement in accordance with ISAE (UK) 3000 involves performing
procedures to obtain reasonable assurance about the compliance of the mark up of the consolidated
financial statements with the DTR 4.1.15R-DTR 4.1.18R. The nature, timing and extent of procedures
selected depend on the practitioner's judgement, including the assessment of the risks of material
departures from the requirements set out in DTR 4.1.15R-DTR 4.1.18R, whether due to fraud or error.
Our reasonable assurance engagement consisted primarily of:
• obtaining an understanding of the iXBRL mark up process, including internal control over the
mark up process relevant to the engagement;
• reconciling the marked up data with the audited consolidated financial statements of the
company dated 31 December 2024.
• evaluating the appropriateness of the company’s mark up of the consolidated financial
statements using the iXBRL mark-up language;
• evaluating the appropriateness of the company’s use of iXBRL elements selected from a
generally accepted taxonomy and the creation of extension elements where no suitable
element in the generally accepted taxonomy has been identified; and
• evaluating the use of anchoring in relation to the extension elements.
In this report we do not express an audit opinion, review conclusion or any other assurance
conclusion on the consolidated financial statements. Our audit opinion relating to the consolidated
financial statements of the company for the year ended 31 December 2024 is set out in our
Independent Auditor’s Report dated 18 February 2025.
Use of our report
Our report is made solely to the company’s members, as a body, in accordance with ISAE (UK) 3000.
Our work has been undertaken so that we might state to the company those matters we are required
to state to them in this report and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the company and the company’s members
as a body for our work, this report, or for the conclusions we have formed.
Claire Faulkner (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, UK
3 March 2025