1

BAE Systems

2008 Half Year Results

1 August 2008

2

Overview - First half 2008

• Continued good performance– good programme execution

• Further progress against strategy– broad base of business– multi-Home Market positions

• Excellent visibility– large order book – appropriate terms of trade– realistic plans

First halfSales by Sector

25%Electronics, Intelligence & Support

33%Land &

Armaments

18%InternationalBusinesses

24%Programmes

& Support

First halfEBITA by Sector

23%Electronics, Intelligence & Support

28%Land &

Armaments

26%InternationalBusinesses

23%Programmes

& Support

Building the foundations for long-term sustainable growth

3

• Difficult defence budget environment but:-

– Growth from sustainable through-life business

– Multi-year commitment to key large programmes

• Air– Typhoon

– multi-year Tranche 2 delivery programme– Tranche 3 dialogue underway

• Naval– Type 45 six ship programme

– FSC planning underway– CVF manufacturing contract – BVT transaction completed

– Astute long lead now into boat five– working on Successor Submarine

• Land– FRES timing uncertainty

– upgrade opportunities eg Warrior– MASS underpins ammunition throughput

UK businesses

Robust, realistic, business planning assumptions

4

US businesses - Electronics, Intelligence & Support

BAE Systems - the 6th largest US defence supplier

Electronics & Integrated Solutions

– Continued good demand for Electronic Warfare systems – eg thermal sights, CMWS

– F-22 EW production– transition to F-35 production underway

Customer Solutions

– Ship Repair– successfully addressing upgrade opportunities

– MTC Technologies acquisition completed– advances US readiness and sustainability strategy

5

US businesses - Land & Armaments

Tracked vehicle programmes

– Continued high level of reset activity– expected to sustain beyond operational demand

– Progression to new generation programmes underway– FCS / NLOS-C

Wheeled Vehicle programmes

– Mine Protected Vehicle– MRAP follow-on contracts and MMPV– MRAP sustainment contracts

– FMTV– large follow on contract and rising production rate

– JLTV – longer term opportunity

Benefiting from high priority programmes

6

Other Home Markets

• Saudi Arabia– Salam Typhoon in final assembly, training underway– modernisation activities continue on-track

• Sweden– Danish and Dutch CV90 deliveries underway

• South Africa– further RG31 opportunities

• Australia– Tenix Defence acquisition completed

– adds Naval and enhances Land and Air systems capabilities

7

Other Home Markets

• India - opportunities to develop as new Home Market– pursuing Land systems opportunities with M&M– implementing Indian Hawk programme with HAL

• Saudi Arabia– Salam Typhoon in final assembly, training underway– modernisation activities continue on-track

• Sweden– Danish and Dutch CV90 deliveries underway

• South Africa– further RG31 opportunities

• Australia– Tenix Defence acquisition completed

– adds Naval and enhances Land and Air systems capabilities

8

Top Ten Objectives - 2008

1. Meet 2008 financial targets and set challenging/realistic longer term plans

2. Develop partnering approach to meet customers’ capability requirements

3. Ensure continued quality application of our mandated business processes

4. Further enhance programme execution - schedule and cost performance

5. Progress development of security capabilities in our home markets

6. Grow our US business including execution of planned investments

7. Progress industrialisation plan and further business in Kingdom of Saudi Arabia

8. Continue to implement the UK Defence Industrial Strategy

9. Progress export opportunities from each of our home markets

10. Continue to drive performance in Safety, Ethics and Diversity

9

George Rose

10

Financial Highlights

* earnings before amortisation and impairment of intangible assets, finance costs and taxation** excluding amortisation and impairment of intangible assets and non-cash finance movements

• Sales - continuing

• EBITA - continuing *

• Underlying earnings per share - continuing **

• Cash outflow from operating activities

• Net debt

• Order book

• Interim dividend per share

£7,751m

£881m

17.5p

£(387)m

£(708)m

£41.1bn

5.8p

11

6,891 700

31 (49)(2)

(20)

(179)(3)

498

6,891 700

31

(50)(180)

501

Income Statement - Continuing Operations

First Half2007

Reported

First Half2008

Reported

7,751 881

30

(102)(210)

599

7,751 881

30 (21)(41)(32)

(221)(13)

615

First Half2008

Underlying

First Half2007

Underlying

SalesEBITA *

Finance Incomededuct: Pension Interest

Mark to MarketUnderlying Finance Costs

Amortisation/ImpairmentTaxMinority Interests

Profit after Tax

* earnings before amortisation and impairment of intangible assets, finance costs and taxation £ millions

12

9,559

1,887

787

(5,481)

(1,629)

63

52

64

700

6,002

31/12/07

Balance Sheet

30/06/08

9,966

2,022

892

(4,498)

(2,288)

297

153

-

(708)

5,836

Intangible fixed assets

Tangible fixed assets

Investments

Working capital

Retirement benefit obligations

Tax assets & liabilities

Financial assets & liabilities

Assets held for resale

Net (debt) / cash

Net assets

£ millions

13

Operating Business Cash Flow

(387)(216)

17 (586)

Cash outflow from operating activitiesCapital expenditure (net) & financial investmentDividends from equity accounted investments

Operating business cash flow

Electronics, Intelligence & SupportLand & ArmamentsProgrammes & SupportInternational BusinessesHQ & Other Businesses

Operating business cash flow

28 84

134 (739) (93)

(586)

£ millions

First Half 2008

14

Movement in Net Cash / (Debt)

700

(586)

(189)

(274)

(416)

(19)

51

7

18

(708)

Net Cash 31.12.07

Operating business cash flow

Interest and taxation

Equity dividends paid

Acquisitions & disposals

Net purchase of equity shares

Other non-cash movements

Foreign exchange

Movement in cash on customers’ account

Net Debt 30.06.08

£ millions

First Half 2008

15

Business Groups

First Half 2008Sales by Sector *

Strong performance – well balanced business

25%Electronics, Intelligence & Support

33%Land &

Armaments

18%InternationalBusinesses

24%Programmes

& Support

First Half 2008EBITA by Sector *

23%Electronics, Intelligence & Support **

28%Land &

Armaments

26%InternationalBusinesses

23%Programmes

& Support

* excluding HQ & Other Businesses** excluding profit on disposal of Surveillance and Attack business

16

First Half2007

$3,857m

$380m

$380m

9.9%

$6.7bn

$187m

First Half2008

$3,870m

$512m

$392m

10.1%

$7.2bn

$55m

Electronics, Intelligence & Support

Sales

EBITA

EBITA *

Margin *

Order book

Cash flow

* First Half 2008 excluding $120m profit on disposal of Surveillance and Attack business

17

Land & Armaments

Sales

EBITA

Margin

Order book

Cash flow

First Half2008

$5,126m

$476m

9.3%

$15.8bn

$166m

First Half2007

$2,366m

$230m

9.7%

$10.0bn

$(93)m

18

Programmes & Support

Sales

EBITA

Margin

Order book

Cash flow

First Half2008

£1,917m

£191m

10.0%

£20.7bn

£134m

First Half2007

£2,354m

£231m

9.8%

£17.3bn

£184m

19

International Businesses

Sales

EBITA

Margin

Order book

Cash flow

First Half2008

£1,397m

£219m

15.7%

£9.8bn

£(739)m

First Half2007

£1,550m

£221m

14.3%

£7.2bn

£26m

20

First Half2008

£113m

£(29)m

£(93)m

HQ & Other Businesses

Sales

EBITA

Cash flow

First Half2007

£124m

£(62)m

£(134)m

21

Financial Summary

* earnings before amortisation and impairment of intangible assets, finance costs and taxation** excluding amortisation and impairment of intangible assets and non-cash finance movements

• Sales - continuing

• EBITA - continuing *

• Underlying earnings per share - continuing **

• Cash outflow from operating activities

• Net debt

• Order book

• Interim dividend per share

£7,751m

£881m

17.5p

£(387)m

£(708)m

£41.1bn

5.8p

22

Mike Turner

23

Summary

• Continued good performance– good programme execution– good financial performance

• Further progress against strategy– broad base of business– multi-Home Market positions

• Excellent visibility– large order book – appropriate terms of trade– realistic plans

• Management succession– seamless transition

Building the foundations for long-term sustainable growth

First halfSales by Sector

25%Electronics, Intelligence & Support

33%Land &

Armaments

18%InternationalBusinesses

24%Programmes

& Support

First halfEBITA by Sector

23%Electronics, Intelligence & Support

28%Land &

Armaments

26%InternationalBusinesses

23%Programmes

& Support