Recommendation factsheet 2024
Published 18 March 2024
© Crown copyright 2024
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This publication is available at https://www.gov.uk/government/publications/2024-contract-profit-rate-assessment/recommendation-factsheet-2024
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 and capital servicing rates methodology.
Baseline Profit Rate
The baseline profit rate is step 1 of the four-step process for determining the contract profit rate for a qualifying defence contract.
From 01 April 2024, this replaces the previous six-step process.
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 rolling average of the underlying rate.
| 2020/21 | 2021/22 | 2022/23** | 2023/24 | 2024/25 | |
|---|---|---|---|---|---|
| Underlying rate (unadjusted for capital servicing) [footnote 1] | 9.80% | 9.59% | 8.24% | 9.50% | 9.31% |
| Capital servicing adjustment | -1.57% | -1.40% | -0.89% | -1.06% | -1.22% |
| Underlying rate | 8.23% | 8.19% | 7.35% | 8.44% | 8.09% |
| Baseline profit rate recommended by the SSRO; | |||||
| rolling average of the underlying rate* | 8.22% | 8.31% | 8.07% | 8.29% | 8.24% |
Median capital servicing adjusted return on cost of production
Data sources
For further information on the data selection approach please see section 7 of the Single source baseline profit rate and capital servicing rates methodology. A company update search of the Orbis database[footnote 2] was carried out on 1 November 2023 on data update number 342001 using software version 342. The financial data for the calculation was extracted from Orbis at the same time.
Proportion of companies by country
Proportion of companies with defence keyword
Supplementary statistics
| Number of companies | 300 |
|---|---|
| of which profit making | 249 |
| Aggregate turnover (£billions) | £1,221 |
| Total capital employed (CE) (£billions) | £325 |
| Average company CP:CE ratio | 3.35 |
Source: Orbis (Cash figures shown in rounded GBP Billions)
Names of companies in the index
| Aaon INC |
| AAR Corp |
| AB Transitio * |
| AB Volvo |
| Accuracy International Limited |
| Advanced Mechanical and Optical Systems * |
| Aerovironment, Inc. * |
| Aguirre Maquinaria Agricola SL. |
| AIR Industries Group * |
| Airbus SE |
| Airtanker Holdings Limited |
| Airtanker Services Limited |
| Alamo Group INC |
| Alimak Group AB |
| Allient INC |
| Allison Transmission Holdings, Inc. |
| Alltruck PLC |
| Alstom S.A * |
| American Axle & Manufacturing Holdings INC |
| Ametek INC |
| Amtech Systems INC |
| Analog Devices INC |
| Andritz AG |
| Applus Services, S.A. |
| Aptiv PLC |
| Archrock, Inc. |
| Ashtead Group PLC |
| Astec Industries INC |
| Astronics Corporation * |
| Astronova, Inc. |
| Athader SL |
| Atlas Copco AB |
| ATS Corporation |
| Aumann AG * |
| Autoliv, Inc. |
| Avant Tecno Oy |
| Avon Protection PLC * (J) |
| Axcelis Technologies INC |
| Axon Enterprise, Inc. |
| Azkoyen SA |
| Babcock & Wilcox Enterprises, Inc. * |
| Babcock International Group PLC |
| BAE Systems PLC |
| Bailey Trailers Limited |
| Barco NV |
| Barnes Group INC |
| Binder + Co AG |
| Bittium OYJ * |
| BK Technologies Corporation * |
| Blue Bird Corporation * |
| BMI Trailers Limited |
| Boeing Company (The) * |
| Broadwind, Inc. * |
| Bruker Corporation |
| Brunvoll Holding AS |
| BWX Technologies Inc. |
| Caci International INC |
| Cactus, Inc. |
| CAE INC |
| Carver Group Limited |
| Castledon LTD |
| Caterpillar INC |
| Ceco Environmental Corp. |
| CGG |
| Chart Industries INC |
| Chemring Group PLC |
| Circor International INC (J) |
| CMZ Machine Tool Manufacturer Sociedad Limitada. |
| CNH Industrial N.V |
| Cognex Corp |
| Coherent Corp |
| Cohort PLC |
| Colosio S.R.L. |
| Columbus Mckinnon Corp |
| Commercial Vehicle Group, Inc. |
| Comtech Telecommunications Corp * |
| Construcciones Y Auxiliar de Ferrocarriles, S.A. |
| Continental AG |
| Cowles Holdings Limited |
| CPI Aerostructures INC |
| CTA International SAS |
| CTT Systems AB |
| Cummins Inc. |
| Curtiss Wright Corp |
| Cuypers Vorkliften |
| D.R.A. LTD |
| Data I/O Corp * |
| David Ritchie (Implements) Limited |
| Dawsongroup PLC |
| de Lorenzo S.P.A. |
| Deere & CO |
| Deutz AG |
| Douglas Dynamics, Inc. |
| Dril-Quip INC * |
| Ducommun INC |
| Duerr AG |
| Electromecanica Naval E Industrial SA * |
| Energy Recovery, Inc. |
| Enerpac Tool Group Corp |
| Espey MFG and Electronics Corp |
| EVS Broadcast Equipment SA |
| Fabricacion de Elevadores SL * |
| Fabrications Mecaniques de l’Atlantique * |
| Faro Technologies INC * |
| Federal Signal Corp |
| Filtronic PLC |
| Finning International INC |
| Fisher (James) & Sons PLC |
| Flowserve Corp |
| Fortress Transportation and Infrastructure Investors LLC * |
| Forvia SE |
| Frigoveneta S.P.A. |
| Frumecar SL |
| G M Treble Holdings Limited |
| G.H.B. (Holding) Limited |
| Gama Aviation PLC * |
| Gatx Corp |
| Genasys Inc. * |
| Gencor Industries, Inc. |
| General de Alquiler de Maquinaria, S.A. |
| General Dynamics Corp |
| General Electric Company |
| Gentex Corp |
| Gesellschaft fuer Oeltechnik mit beschraenkter Haftung |
| Gorman-Rupp Company (The) |
| Graco INC |
| Graham Corp |
| Greenbrier Companies, Inc. (The) |
| Guzzetti S.P.A. * |
| H&E Equipment Services, Inc. |
| Heico Corp |
| Heidelberger Druckmaschinen AG |
| Heroux-Devtek INC |
| Hexcel Corp |
| Hiden Instruments Limited |
| Honeywell International INC |
| Huntington Ingalls Industries, Inc. |
| Idex Corp |
| IMI PLC |
| Indra Sistemas S.A. |
| Industrias Montanesas Electricas Mecanicas SL |
| Inficon Holding AG |
| Ingersoll Rand Inc. |
| Innovative Solutions & Support INC |
| Interroll Holding AG |
| IPG Photonics Corporation |
| Istobal SA |
| Italcab S.P.A. * |
| Jacobs Solutions Inc. |
| John Bean Technologies Corp |
| John Wood Group PLC * (J) |
| Johnson Controls International PLC (J) |
| Jost Werke AG |
| Judges Scientific PLC |
| Kadant INC |
| Kaman Corp * |
| Katsa Oy |
| Kbr, Inc. |
| Kesla OYJ * |
| Keysight Technologies, Inc. |
| Klingelnberg AG |
| Koenig UND Bauer AG |
| Komax Holding AG |
| Konecranes OYJ |
| Kratos Defense and Security Solutins INC * |
| L3harris Technologies, Inc. |
| LAM Research Corp |
| Leonardo S.P.A. |
| Lillbacka Powerco Oy * |
| Linamar Corporation |
| Lockheed Martin Corp |
| Lombardi Converting Machinery S.P.A. * |
| Magna International INC |
| Manitex International, Inc. |
| Manitou BF |
| Manitowoc Company, Inc. (The) * |
| Marel HF |
| Mariani S.R.L. |
| Maschinenfabrik Berthold Hermle AG |
| MAX Automation SE |
| Mcgrath Rentcorp |
| Mecapack |
| Mercury Systems INC |
| Mikron Holding AG |
| Miller Industries INC |
| MKS Instruments INC |
| Modine Manufacturing CO |
| Moog INC |
| Motorola Solutions, Inc. |
| Mpac Group PLC * |
| MS International PLC |
| MTU Aero Engines AG |
| Muehlhan AG |
| N3 Engine Overhaul Services GmbH & Co. KG |
| Nammo AS |
| Natural GAS Services Group, Inc. * |
| NC Engineering (Hamiltonsbawn) Limited * |
| NFI Group Inc. * |
| NG Bailey Group Limited * |
| Nordson Corp |
| Northrop Grumman Corporation |
| NOV INC |
| Novanta INC |
| Nuova Idropress - Societa’ PER Azioni IN Forma Abbreviata NIP S.P.A. |
| NVE Corporation |
| Officina Bocedi SRL |
| Officina Meccanica F.Lli Tabarelli S.P.A. |
| Onto Innovation Inc. |
| Oshkosh Corporation |
| Oxford Instruments PLC |
| Oy El-Ho Ab |
| Paccar INC |
| Park Aerospace Corp. |
| Paul Mueller Company |
| Petards Group PLC |
| Pietro Fiorentini S.P.A. |
| Ponsse OYJ |
| Portsmouth Aviation Holdings Limited |
| Powell Industries INC |
| Presses et Cisailles Lefort * |
| PSM Projekt System & Management Gmbh |
| PVA Tepla AG |
| Qinetiq Group PLC |
| Raute OYJ * |
| Redde Northgate PLC |
| Renew Holdings PLC |
| Renishaw PLC |
| REV Group, Inc. |
| Rheinmetall AG |
| Ricardo PLC |
| Robson Handling Technology Limited * |
| Rockwell Automation, Inc. |
| Rohde & Schwarz GmbH & Co. Kommanditgesellschaft |
| Rolls-Royce Holdings PLC |
| Ropsley Limited |
| RTX Corp |
| RWG (Repair & Overhauls) Limited |
| Ryder System INC |
| Saab AB |
| Saalasti Oy |
| Safran |
| Salmoiraghi S.P.A. |
| Saltire Energy Limited |
| Sawo Holding A/S |
| SC Group-Global Limited |
| Schlatter Industries AG |
| Schmitt - Elevadores, LDA |
| Servotronics INC * |
| Servovalve S.P.A. * |
| Siemens AG |
| Skako A/S |
| Smiths Group PLC |
| Snc-Lavalin Group INC (J) |
| Speedy Hire PLC |
| Spirit Aerosystems Holdings, Inc. * |
| Star Refrigeration Limited * |
| Systemair AB |
| TAI Milano S.P.A. |
| Taylor Devices INC |
| Teagle Holdings Limited * |
| Technipfmc PLC |
| Teledyne Technologies Incorporated |
| Tennant CO |
| Teradyne INC |
| Terex Corp |
| Tesmec SPA |
| Textron INC |
| Thales |
| THE Shyft Group, Inc. |
| Thwaites Limited |
| Thyssenkrupp AG |
| Tiber Pack S.P.A. |
| Tomra Systems ASA |
| Tornado Global Hydrovacs Ltd. |
| Toromont Industries LTD |
| Trakm8 Holdings PLC * |
| Transdigm Group Incorporated (J) |
| Trinity Industries INC |
| Triumph Group INC |
| Tronrud Engineering AS |
| TTM Technologies INC |
| Twin Disc INC |
| United Rentals, Inc. |
| Vaisala OYJ |
| Veeco Instruments INC |
| Vegsund Slip Holding AS |
| Vicinity Motor Corp. * |
| VSE Corp |
| Wabash National Corp |
| Wacker Neuson SE |
| Wartsila OYJ * (J) |
| Washtec AG |
| Werent S.R.L. |
| Westinghouse AIR Brake Technologies Corp |
| Williams Shipping Holdings Limited |
| Willis Lease Finance Corp |
| Willis Mitsui & CO Engine Support Limited * |
| Wilton Universal Group Limited * |
| Woodward, Inc. |
| Xylem Inc. |
‘*’ Indicates that the company is a loss-maker in the 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 4 Capital Servicing Adjustment (CSA) of the four-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 4 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.
| 2020/21 | 2021/22 | 2022/23* | 2023/24 | 2024/25 | |
|---|---|---|---|---|---|
| Fixed capital servicing rate | 3.66% | 3.27% | 2.87% | 2.90% | 3.26% |
| Positive working capital servicing rate | 1.22% | 1.33% | 1.09% | 1.67% | 3.10% |
| Negative working capital servicing rate | 0.61% | 0.65% | 0.51% | 0.51% | 1.61% |
‘*’ Shown are the 2022/23 rates recommended by the SSRO. The Secretary of State determined the BPR for 2022/23 as an average of the composite underlying rates calculated by the SSRO for the three years prior to 2021 (8.50%, 8.23%, and 8.19%), keeping the BPR at 8.31 per cent. This fixed the capital servicing rates the same as for 2021/22.
Data sources
For further information on the data selection approach please see section 13 of the Single source baseline profit rate and capital servicing rates 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 and 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
Government owned contractor rate
The Government owned contractor rate is a baseline profit rate that may be applied to qualifying contracts in place of the baseline profit rate set out on page 1.
The government owned contractor rate must only apply to qualifying defence contracts where:
- the contract is between Secretary of State and a company incorporated under the Companies Act that is wholly owned by the UK Government; and
- both parties to the contract agree that it should apply.
Calculation of Government owned contractor rate
The government owned contractor rate was set at a level that is opposite to the application of the SSRO funding adjustment. Prior to 2024/25 this approach delivers a contract profit rate of zero if steps 2, 5 and 6 are determined to be zero.
For 2024/25 onwards, Schedule 10 of the Procurement Act 2023 has come into force removing the SSRO funding adjustment from the previous six-step process. The approach remains the same for the four-step process brought into force by Schedule 10, such that it delivers a contract profit rate of zero if steps 2, 3 and 4 are determined to be zero.
| 2020/21 | 2021/22 | 2022/23 | 2023/24 | 2024/25 | |
|---|---|---|---|---|---|
| Government owned contractor rate | 0.057%* | 0.046% | 0.038% | 0.00% |
Note: The Government-owned contractor rate was first introduced for 2021/22.
‘*’ The SSRO did not recommend a government owned contractor rate for 2021/22 and the rate was assessed by the Secretary of State. The reason for doing so is set out in the London Gazette: https://www.thegazette.co.uk/notice/3760612
‘*’ A four-year average was used for 2022/23; a three-year average for pre-2022/23 and a three-year average (excluding the 2022/23 underlying rate) for 2023/24 and 2024/25.
The pre-2020/21 underlying rates used for the three-year average were: 2018/19: 7.94%, 2019/20: 8.50%
** Shown are the 2022/23 rates recommended by the SSRO. The Secretary of State determined the BPR for 2022/23 as an average of the composite underlying rates calculated by the SSRO for the three years prior to 2021 (8.50%, 8.23%, and 8.19%), keeping the BPR at 8.31 per cent.
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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 4 (previously step 6) of the contract profit rate applies. ↩
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https://www.bvdinfo.com/en-gb/our-products/data/international/orbis ↩