BAE-annual-report-2014

Strategic Report
respectively. These repayments had been largely
pre-financed by the £0.4bn raised in the UK bond market
in 2012.
principal joint ventures, Eurofighter, MBDA and Air
Astana, and, this year, provides additional information
in respect of the Group’s interests in those companies.
In October, the Group issued $800m (£495m) 3.8%
and $300m (£184m) 4.75% bonds maturing in 2024
and 2044, respectively, intended for general corporate
purposes, including the repayment of debt securities
at maturity in 2015 and 2016.
Cash and cash equivalents of £2,314m (2013 £2,222m)
are held primarily for the repayment of £0.7bn of debt
securities maturing in 2015 and 2016, the share
repurchase programme, pension deficit funding,
payment of the 2014 final dividend and management
of working capital.
Balance sheet
The £248m increase in intangible assets to £10.0bn
(2013 £9.7bn) arises from business acquisitions made
in the year (£289m) and exchange translation (£258m),
partly offset by the impairment of goodwill relating to the
US commercial shipbuilding and South African businesses
(£161m), and the year’s amortisation charge (£179m).
Property, plant and equipment, and investment property
reduced to £1.7bn (2013 £2.1bn) reflecting the disposal
of a residential and office facility in Saudi Arabia.
Equity accounted investments and other investments
reduced to £236m (2013 £286m) mainly reflecting the
dividends of £63m received in the year. Note 12 to the
Group accounts on page 125 identifies the Group’s
MATURITY OF THE GROUP’S BORROWINGS (£BN)
The £1.9bn increase in the Group’s share of the pre-tax
pension deficit mainly reflects an increase in liabilities
due to a 0.7 percentage point decrease in the real
discount rate to 0.4% in the UK and a 0.8 percentage
point decrease in the nominal discount rate to 4.1% in
the US. Details of the Group’s pension schemes are
provided in note 21 to the Group accounts on page 134.
The triennial funding valuations of all of the Group’s UK
pension schemes were performed in 2014 and showed
an aggregate funding deficit of £2.7bn. New funding
arrangements, including deficit recovery plans which run
until 2026, have been concluded with the trustees of
those schemes.
A net deferred tax asset of £1.2bn (2013 £0.7bn)
relating to the Group’s pension deficit is included within
net tax assets and liabilities.
There was a £0.5bn increase in working capital mainly
reflecting a net reduction in advance contract funding
and utilisation of provisions.
At 31 December 2014, the South African land vehicles
business (£41m) and AACC (£12m), both expected to be
sold in 2015, are classified as held for sale. The disposal
of the residential and office facility in Saudi Arabia
classified as held for sale at 31 December 2013
(£140m) was completed on 9 January 2014.
BALANCE SHEET
2014
3.4
2015
2.9 Intangible assets 9,983 9,735
Property, plant and equipment,
2016
2.6
and investment property
2017
2.6
Equity accounted investments
1,718 2,071
2018
2.6 and other investments 236 286
2019
2.0 Other financial assets and
liabilities (net) (112) (23)
2020
2.0
Pension deficit (net) (5,368) (3,509)
2021
1.7
Tax assets and liabilities (net) 865 405
2022
1.3 Working capital (4,466) (4,988)
2023
1.3 Net assets held for sale 53 140
2024
0.8 Net debt (as defined by the Group) KPI (1,032) (699)
2025
0.8 Net assets 1,877 3,418
2026
0.8
2027 * 0.4 EXCHANGE RATES – YEAR END
2014 2013
P132 Note 19 to the Group accounts
* Repayable in 2041 (£254m) and 2044 (£190m).
£/$ 1.559 1.656
£/€ 1.287 1.202
£/A$ 1.908 1.851
MOVEMENT IN THE GROUP’S PENSION DEFICIT (£BN)
2013
Real discount rate
Return on assets
Deficit funding
Other
2014
2014
£m
2013
£m
3.5
3.0
(1.2)
(0.4)
0.5
5.4
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
P134 Note 21 to the Group accounts
BAE Systems
Annual Report 2014
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