Recommendation fact sheet 2021/22
Updated 15 March 2022
© Crown copyright 2022
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This publication is available at https://www.gov.uk/government/publications/2021-contract-profit-rate/recommendation-fact-sheet-202122
Under the Defence Reform Act 2014, the SSRO must provide the Secretary of State with its assessment of the appropriate rates used to determine the contract profit rate for pricing qualifying defence contracts and qualifying sub-contracts. For further information on the methodology used to calculate these rates please see the Single Source baseline profit rate, capital servicing rates and funding adjustment methodology.
Baseline Profit Rate
The baseline profit rate is step 1 of the six-step process for determining the contract profit rate for a qualifying defence contract.
The baseline profit rate is calculated from an index of public and private companies. The rate is a composite that combines search results from the “Develop and Make” and “Provide and Maintain” activity groups. The underlying rate is the average of the median capital servicing adjusted profit on cost of production of each group. The baseline profit rate is the three-year rolling average of the underlying rate.
| 2017/18 | 2018/19 | 2019/20 | 2020/21 | 2021/22 | |
|---|---|---|---|---|---|
| Underlying rate (unadjusted for capital servicing) | 8.39% | 9.22% | 9.85% | 9.80% | 9.59% |
| Capital servicing adjustment | -1.95% | -1.28% | -1.35% | -1.57% | -1.40% |
| Underlying rate | 6.44% | 7.94% | 8.50% | 8.23% | 8.19% |
| Baseline profit rate: three-year rolling average of the underlying rate | 7.46% | 6.81% | 7.63% | 8.22% | 8.31% |
Note: The capital servicing adjustment accounts, at an aggregate level, for different levels of capital employed across the companies in the index and so sets a baseline upon which step 6 of the contract profit rate applies. The pre-2017/18 underlying rates used for the three-year average were: 2016/17: 6.06%; 2015/16 (calculated using the Review Board’s methodology): 9.88%.
Data sources
For further information on the data selection approach please see section 7 of the Single Source baseline profit rate, capital servicing rates and funding adjustment methodology. A company update search of the Orbis database was carried out on 5 November 2020 on data update number 202001 using software version 202. The financial data for the calculation was extracted from Orbis at the same time.
Median capital servicing adjusted return on cost of production
Proportion of companies by country
Proportion of companies with defence keyword
Supplementary statistics
| Number of companies | 347 |
|---|---|
| of which profit making | 297 |
| Aggregate turnover | £1,142 |
| Total capital employed (CE) | £315 |
| Average company CP:CE ratio | 3.24 |
Source: Orbis (Cash figures shown in GBP Billions)
Names of companies in the index
| A/S Vestfrost * | DEL BO Impianti S.R.L. | Magna International INC | Spirit Aerosystems Holdings, Inc. |
| Aaon INC | Deutz AG | Makron Oy | SPX Corp |
| AAR Corp | Douglas Dynamics, Inc. | Manitex International, Inc. * | SPX Flow, Inc. |
| AB Transitio | Dril-Quip INC * | Manitou BF | Star Refrigeration Limited |
| AB Volvo | Dublin Aerospace Limited | Manitowoc Company, Inc. (The) | Steerprop Oy * |
| Advanced Energy Industries INC | Ducommun INC | Marel HF | Sturm Ruger & CO INC |
| Aerojet Rocketdyne Holdings, Inc. | Duerr AG | Mariani S.R.L. | Sulzer AG |
| Aerovironment, Inc. | DXP Enterprises INC | Maschinenfabrik Berthold Hermle AG | Sureserve Group PLC |
| Aertec Solutions SL. | Electromecanica Naval E Industrial SA | MAX Automation SE * | SVI S.P.A. |
| Aggreko PLC | Elettronica - Societa PER Azioni | Maxar Technologies Inc. | Swede Ship Marine Aktiebolag * |
| Airbus SE | Energy Recovery, Inc. | Mccoy Global Inc. | Systemair AB |
| Alamo Group INC | Enerpac Tool Group Corp | Mcgrath Rentcorp | Tacchi Giacomo E Figli S.P.A. * |
| ALC (Superholdco) Limited | Espey Manufacturing & Electronics Corp | Meggitt PLC | Talgo,S.A. |
| Alimak Group AB | Eurofighter Jagdflugzeug GmbH | Mercury Systems INC | Talleres Daumar SL |
| Allied Motion Technologies, Inc. | Europress Group Oy | Mikron Holding AG | Taylor Devices INC |
| Allison Transmission Holdings, Inc. | EVS Broadcast Equipment SA | Miller Industries INC | Teagle Holdings Limited |
| Alstom | Faro Technologies INC * | Mino S.P.A. | Team INC * |
| Altra Industrial Motion Corp. | Fedegari Autoclavi - S.P.A. | MKS Instruments INC | Teledyne Technologies Incorporated |
| American Axle & Manufacturing Holdings, Inc. * | Federal Signal Corp | Modine Manufacturing CO | Tennant CO |
| Ametek INC | Filtronic PLC * | Moen-Gruppen AS | Tenneco Inc. |
| Amtech Systems INC | Finning International INC | Moog INC | Teradyne INC |
| Applus Services, S.A. | Fisher (James) & Sons PLC | Morgan Advanced Materials PLC | Terex Corp |
| Aptiv PLC | Flir Systems INC | Motorola Solutions, Inc. | Tesmec SPA |
| Archrock, Inc. | Flowserve Corp | Mpac Group PLC | Textron INC |
| Ashtead Group PLC | Fratelli Mazzocchia S.P.A. * | MS International PLC | Thales |
| Astec Industries INC | Freightcar America, Inc. * | MTS Systems Corp | THE Shyft Group, Inc. |
| Astronics Corporation | Frigoveneta S.P.A. | MTU Aero Engines AG (J) | Thwaites Limited |
| Astronova, Inc. | G.H.B. (Holding) Limited | Muehlhan AG | Thyssenkrupp AG * |
| Atlas AIR Worldwide Holdings, Inc. | Gama Aviation PLC | National Oilwell Varco, Inc. * | Tomra Systems ASA |
| Atlas Copco AB | GAP Holdings Limited | Natural GAS Services Group, Inc. * | Tornos Holding S.A |
| ATS Automation Tooling Systems INC | Gatx Corp | Navistar International Corp | Total Energy Services Inc. * |
| Autoliv, Inc. | Genasys Inc. | NC Engineering (Hamiltonsbawn) Limited | Trakm8 Holdings PLC * |
| Avant Tecno Oy | Gencor Industries, Inc. | Nicolas Correa S.A. | Trane Technologies PLC |
| Axcelis Technologies INC | General Dynamics Corp | Nordson Corp | Transdigm Group Incorporated |
| Axon Enterprise, Inc. * | General Electric Company | Northrop Grumman Corporation | Trinity Industries INC |
| Azkoyen SA | Gentex Corp | Novanta INC | Triumph Group INC |
| Babcock & Wilcox Enterprises, Inc. | Gesellschaft fuer Oeltechnik mit beschraenkter Haftung | Nuova Idropress - Societa’ PER Azioni IN Forma Abbreviata NIP S.P.A. | Tronrud Engineering AS * |
| Babcock International Group PLC * | Glunz & Jensen Holding A/S * | Oceaneering International INC * (J) | Twin Disc INC |
| BAE Systems PLC | GO Plant Fleet Services LTD | Officine Bieffebi S.P.A. | Ultra Electronics Holdings PLC |
| Barco NV | Gorman-Rupp Company (The) | Omav S.P.A. | United Rentals INC |
| Barnes Group INC | Graco INC | Onto Innovation Inc. * | Univer S.P.A. * |
| Bevan Group LTD | Graham Corp | Oshkosh Corporation | Vaisala OYJ |
| Bittium OYJ | Gray & Adams (Doncaster) Limited | Oxford Instruments PLC | Varian Medical Systems INC |
| BK Technologies INC * | Greenbrier Companies, Inc. (The) | P P S Commercials Limited | VEO Oy |
| Blonder Tongue Laboratories INC * | Grovgaarden AS | Paccar INC | VMS (Holdings) Limited |
| Boeing Company (The) | Gulf Island Fabrication INC * | Park Aerospace Corp. | VSE Corp |
| Boston Scientific Corp | H&E Equipment Services, Inc. | Paul Mueller Company | Wabash National Corp |
| Brieda E C. - S.R.L. | Havyard Group ASA * | PC TEL INC | Wacker Neuson SE |
| Broadwind, Inc. * | Heico Corp | Pekkaniska Group Oy | Wartsila OYJ |
| Bruker Corporation | Heidelberger Druckmaschinen AG * | Perceptron INC * | Washtec AG |
| Brunvoll Holding AS | Heroux-Devtek INC * | Petards Group PLC * | Waters Corp |
| Burkhalter Holding AG | Hexcel Corp | Pietro Fiorentini S.P.A. | Welbilt INC |
| BWX Technologies Inc. | Honeywell International INC | Ponsse OYJ | Westinghouse AIR Brake Technologies Corp |
| Byggesystemer Norge AS | Huntington Ingalls Industries, Inc. | Portsmouth Aviation Holdings Limited * | William Cook Holdings Limited (J) |
| C.M.A. S.P.A. | Idex Corp | Powell Industries INC | Williams Shipping Holdings Limited |
| C.S.C. - S.P.A. | Ii-Vi INC | Prima Industrie SPA | Willis Lease Finance Corp |
| Caci International INC | Imer International SPA | Qinetiq Group PLC | Wilton Universal Group Limited * |
| CAE INC | Indra Sistemas SA | Radley Engineering Limited | Wireless Telecom Group INC * |
| CAI International INC | Inficon Holding AG | Raute OYJ | Witt & SON UK Holdings Limited |
| Calf S.P.A. | Ingenieria Y Tecnicas de Montajes Lointek SL | Raytheon Technologies Corporation | Wood Group (John) PLC |
| Calpeda S.P.A. | Innovative Solutions & Support INC | Renew Holdings PLC | Woodward, Inc. |
| Caprari S.P.A. | Insta Group Oy | Renishaw PLC | Worthington Industries INC |
| Caterpillar INC | Interroll Holding AG | Rheinmetall AG | Xylem Inc. |
| Ceco Environmental Corp. | Intevac INC | Ricardo PLC | Zambello Riduttori 2 - S.R.L. |
| Ceotronics AG | Intricon Corporation * | Robor SRL | Zebra Technologies Corp |
| Chart Industries INC | Istobal SA | Rockwell Automation, Inc. | |
| Chemring Group PLC | Italcab S.P.A. | Rohde & Schwarz GmbH & Co. Kommanditgesellschaft | |
| CMZ Machine Tool Manufacturer Sociedad Limitada. | Jacobs Engineering Group INC | Rolls-Royce Holdings PLC * | |
| CNH Industrial N.V | John Bean Technologies Corp | Roper Technologies, Inc. | |
| Cognex Corp | Judges Scientific PLC | RWG (Repair & Overhauls) Limited | |
| Coherent INC | Kadant INC | Ryder System INC * | |
| Cohort PLC | Kaman Corp | Saab AB | |
| Cohu INC * | Katsa Oy | Saalasti Oy * | |
| Columbus Mckinnon Corp | Kbr, Inc. | Safran | |
| Comerio Ercole S.P.A. | Kesla OYJ | Saltire Energy Limited | |
| Commercial Vehicle Group, Inc. | Keysight Technologies, Inc. | Samp S.P.A. | |
| Comtech Telecommunications Corp | KIS Partners AS | Sandvik AB | |
| Construcciones Y Auxiliar de Ferrocarriles, S.A. | KMG Systems Limited | Schaltbau Holding AG | |
| Continental AG * | Koenig UND Bauer AG | Schlatter Industries AG | |
| Cormach S.R.L. | Komax Holding AG | Schmitt - Elevadores, LDA | |
| Costar Technologies, Inc. * | Konecranes OYJ | Science Applications International Corp | |
| Cowles Holdings Limited | Kongsberg Gruppen ASA (J) | SCM Group S.P.A. | |
| CTA International SAS | Kratos Defense & Security Solutions, Inc. | Sheffield Forgemasters International Limited | |
| CTT Systems AB | Krohne Italia SRL * | Siemens AG | |
| Cubic Corp | KVH Industries INC * | Signature Aviation PLC | |
| Cummins Inc. | L3harris Technologies, Inc. | Skako A/S | |
| Curtiss Wright Corp | LAM Research Corp | Smith & Wesson Brands, Inc. | |
| CVD Equipment Corporation * | Lecitrailer SA | Smith Brothers (Leicester) Limited | |
| Cyberoptics Corp | Leidos Holdings, Inc. | Smiths Group PLC | |
| Dalmec S.P.A. | Leonardo - Finmeccanica S.P.A. | Snc-Lavalin Group INC * | |
| Dana Incorporated | Lillbacka Powerco Oy * | Speedy Hire PLC | |
| Data I/O Corp * | Linamar Corporation | Spirax-Sarco Engineering PLC | |
| Dawsongroup PLC | Lockheed Martin Corp | ||
| Deere & CO | Logset Oy | ||
| Macpresse Europa S.R.L. | |||
| Mactaggart Scott (Holdings) Limited |
‘*’ Indicates that the company is a loss-maker in the year. The data for loss-makers are not included in the 2021/22 assessment, but the companies will be taken forward for consideration next year.
(J) indicates a company that was not in either the D&M or the P&M activity group last year, but has been added this year.
Capital servicing rates
The capital servicing rates are used as part of the Step 6 Capital Servicing Adjustment (CSA) of the six-step process for determining the contract profit rate for a qualifying defence contract. A corresponding adjustment accounts, at an aggregate level, for different levels of capital employed across the companies in the index and so sets a baseline upon which Step 6 of the contract profit rate applies.
The capital servicing rates are calculated from indices of sterling denominated corporate bonds or fixed maturity deposits. The rates are rolling averages of the underlying rates.
| 2017/18 | 2018/19 | 2019/20 | 2020/21 | 2021/22 | |
|---|---|---|---|---|---|
| Fixed capital servicing rate | 4.84% | 4.38% | 3.98% | 3.66% | 3.27% |
| Positive working capital servicing rate | 1.37% | 1.21% | 1.18% | 1.22% | 1.33% |
| Negative working capital servicing rate | 0.59% | 0.53% | 0.53% | 0.61% | 0.65% |
Data sources
For further information on the data selection approach please see section 13 of the Single Source baseline profit rate, capital servicing rates and funding adjustment methodology.
| Rate | Description | |
|---|---|---|
| Fixed capital servicing rate | Seven-year average of ’15-year BBB GBP’ bonds* | C40515Y INDEX |
| Positive working capital servicing rate | Three-year average of ‘1-year BBB GBP’ bonds | C4051Y INDEX |
| Negative working capital servicing rate | Three-year average of Monthly average of UK resident monetary financial institutions’ (excl. Central Bank) sterling weighted average interest rate - time deposits with fixed original maturity <=1 year from private non-financial corporations (in percent) not seasonally adjusted | CFMBI32 |
Sources: Bloomberg or Bank of England
‘*’ Note: Prior to 31 December 2014 the underlying rate is calculated using the Review Board’s methodology, adding 0.5pp to estimate a BBB- yield.
Trends in capital servicing rates
The SSRO funding adjustment
The SSRO funding adjustment is Step 4 of the six-step process for determining the contract profit rate for a qualifying defence contract. The SSRO will be funded equally by the Secretary of State and industry. Industry funding is intended to be equitably shared across contractors based upon the value of their QDCs.
Calculation of SSRO funding adjustment
SSRO funding adjustment = (SSRO costs-Cost of additional tasks requested by SofS) / (Average annual total Allowable Costs of contracts entered into) × 1/2
| Financial year | 2017/18 | 2018/19 | 2019/20 |
|---|---|---|---|
| SSRO running costs (£ thousand) | 5,916 | 6,148 | 6,336 |
| Cost of additional tasks requested by SofS (£ thousand) | - | - | - |
| Total Allowable Costs of QDCs and QSCs (£ thousand) | 2,692,000 | 4,899,000 | 8,414,000 |
| Recommendation | 2021/22 | |
|---|---|---|
| SSRO running costs (£ thousand) – 3-year average | a | 6,133 |
| Cost of additional tasks requested by SofS (£ thousand) – 3-year average | b | - |
| Total Allowable Costs of QDCs and QSCs (£ thousand) – 3-year average | c | 5,355,000 |
| SSRO funding adjustment = (a-b)/c × 50% | 0.057% |
Data sources:
For further information on the data selection approach please see section 1 of part 2 of the Single Source baseline profit rate, capital servicing rates and funding adjustment methodology. The SSRO costs and the costs of additional tasks requested by the Secretary of State are from the SSRO Annual Report and Accounts. The total value of contracts is as reported in the latest SSRO Qualifying defence contract statistics.
SSRO funding adjustment history
