2001 Prelim Results
BAE SYSTEMS PLC
14 February 2002
Preliminary Announcement 2001
BAE SYSTEMS
Profit before interest1 Earnings per share1 Dividend Operating Net debt Order book2
per share cash inflow
£1.26bn 23.4p 9.0p £0.77bn £0.83bn £43.8bn
Up 32.6% Up 24.5% Up 5.9% Down 59.3% Reduced by 7.6% Up 6.8%
Overview of the year
In 2001, we successfully delivered on our plans, despite significant changes in
the marketplace, most notably following the terrorist attacks on 11 September.
Profit before interest1 of £1.26bn was achieved on sales of £13.1bn. The order
book increased 6.8% to £43.8bn.
Our North America business is developing well with a strong trading performance,
having integrated those businesses acquired in 2000.
In our Programmes business, Eurofighter Typhoon made the important transition
from development into production. Also the Nimrod programme has been stabilised
following the major review announced in early 2001; an important milestone on
this contract - electrical systems 'power on' - was achieved in December 2001.
Good progress has been made during the year in securing major new business, in
particular on Joint Strike Fighter (JSF), the Type 45 Destroyer and the Airbus
A380 order book.
In November 2001, we completed a review of our commercial aerospace activities
following the significant decline in the market. As a result of this review, an
exceptional cost of £400m was announced to cover the planned actions, which now
draw a line under our exposure to the financial risks inherent in the regional
aircraft market.
Outlook
Two factors previously identified will adversely impact performance in
2002. The completion of export construction contracts will lead to a reduction
in activity in the Programmes business group and the downturn in the commercial
aircraft market will result in a much reduced contribution from Airbus. These
reductions will be partly mitigated by the overall improvement in performance in
the other business groups.
In 2003, an improved performance from defence activities and a maintained
position at Airbus can be expected to result in a resumption of growth. Looking
further ahead, the existing order book will deliver good growth in defence
activity while prospects for Airbus remain excellent over the medium term.
1 before goodwill amortisation and exceptional items
2 including joint ventures and after the elimination of inter business group orders
Commenting on these results:
Sir Richard Evans, chairman, said '2001 has been a transitional year in the
company's development. Despite difficult markets, we have delivered on our plans
and we have reshaped our commercial aerospace activities to remove risk and
focus on the future growth we see in the commercial jet market.
'We have also brought about a fundamental shift in our defence business to
reflect the growing emphasis on systems and the importance of the US market.'
John Weston, chief executive, added
'Since the early nineties, we have been pursuing a strategy to transform the
company into a world-wide business with systems engineering at its heart.
The progress in 2001 has secured that transformation. 'Our strategy of
targeting growth in defence systems and customer support is working to good
effect.'
2001 Preliminary results statement
BAE SYSTEMS has changed fundamentally in the last three years. Following the
merger between British Aerospace and Marconi Electronic Systems, acquisitions in
North America and the formation of the Integrated Joint Airbus Company (Airbus
SAS), we are well positioned to address current and future markets. The headway
made over the last few years has resulted in BAE SYSTEMS being a more broadly
based company with a better spread of business risk.
Profit before interest1 for the year increased to £1.26bn from £0.95bn in 2000
on sales up 7.8% at £13.1bn. The review of the company's commercial aerospace
activities following the 11 September terrorist attacks and the subsequent
downturn in the commercial aerospace market resulted in an exceptional cost of
£400m, of which £370m has been charged this year.
Earnings per share1 for 2001 is up 24.5% to 23.4p compared to 2000. The Board is
recommending a final dividend of 5.5p per share, bringing the total dividend for
the year to 9.0p. At this level, the annual dividend is covered 2.6 times by
earnings1.
At year end, net debt was in line with plan at £0.83bn (2000 £0.90bn). This
reflects good underlying cash generation in the company, after taking into
account expenditure on restructuring and cash outflows associated with the
Nimrod programme. Year end net debt represents just 12.5% (2000 12.9%) of
shareholders' funds, with interest cover1 standing at 7.1 times (2000 10.4
times).
In 2001 BAE SYSTEMS, in partnership with Lockheed Martin and Northrop Grumman,
won the US Department of Defense (DoD) competition for the JSF programme - the
world's largest ever defence programme, with a combined US and UK requirement
for some 3,000 aircraft, before exports.
JSF is potentially worth in excess of £14bn to BAE SYSTEMS and it will provide
substantial workload and value over many years with the first development
aircraft expected to fly in 2005.
Our position as one of the DoD top suppliers has been enhanced by the successful
integration of the four North American acquisitions we made in 2000. The two
larger acquisitions, the former Lockheed Martin controls and electronic warfare
businesses, have made a major contribution to the company's position in airborne
electronic systems. These businesses have already delivered trading performances
ahead of initial expectations.
A number of challenges, most notably the events of 11 September, have resulted
in a sharp deterioration in the commercial aircraft market. This will have a
significant impact on our civil aerospace activities and will delay the
resumption of growth in the performance of the company in 2002 that we
previously envisaged. The outlook for our defence businesses remains good with a
number of important new programmes set to contribute to our profitability.
The impact of the consequences of 11 September has been more severe for our
commercial aircraft business, and in November 2001 we announced an exceptional
cost of £400m (of which £370m has been charged in 2001) to cover the planned
rationalisation actions. The company regrettably concluded that in this
deteriorating market environment regional jet production is no longer viable.
Consequently, the RJ and RJX regional jet programmes have been closed at an
estimated direct cost of £250m. A further £120m has been charged in 2001 for the
related restructuring of our other commercial aerospace activities. Further
costs amounting to £30m are expected to be charged in 2002.
2001 was an important year for our European relationships. We completed the
restructuring of Airbus, MBDA and AMS which significantly strengthens these
businesses.
Airbus SAS has already demonstrated its capability to perform with a strong
operating performance in 2001 being achieved after investment of some Euro1.8bn
in future programmes. The current market difficulties are a near term concern
but some recovery has already been apparent in the early part of 2002 and the
outlook for Airbus over the medium term is excellent. Despite the cyclical
downturn, order book for the Airbus A380 continues to grow with 85 firm orders
for the aircraft by the year end.
The Nimrod maritime patrol aircraft has been a difficult programme and a
significant contract loss was announced in January 2001. During the year, the
programme has stabilised in line with plan. An important programme milestone -
electrical systems 'power on' - was achieved in December 2001. Although
challenges remain we are confident that an outstandingly capable system will be
delivered to the customer.
Eurofighter Typhoon entered an important phase with the start of production. The
programme is of major significance to our UK based Avionics business, which is
responsible for supplying the Captor radar and the defensive aids sub-system
('DASS') - both high value systems at the heart of Eurofighter Typhoon.
Deliveries of these and other equipment will be an important source of growth
and will result in the continued strong performance of the Avionics business.
Significant progress was made in 2001 towards the launch of the first Airbus
military aircraft programme, the A400M. This is a military transport aircraft to
be supplied to eight European Governments. In total, 196 aircraft are required
under contracts valued at some Euro18bn the first to be delivered in 2008. It
will be a valuable addition to the Airbus portfolio of activities especially at
the low points in the commercial aircraft cycle.
1 before goodwill amortisation and exceptional items
Summarised profit and loss account
for the year ended 31 December
Restated2
2001 2000
£m £m
Sales 13,138 12,185
Operating profit1 956 807
Share of operating profit of joint ventures1 304 143
Profit before interest1 1,260 950
Net interest (177) (91)
Profit before tax, goodwill
amortisation and exceptional items 1,083 859
Profit before tax 70 179
Tax (198) (198)
Minority interests (6) (6)
Loss for the year (134) (25)
Basic and diluted earnings per share1 23.4p 18.8p
Dividend per share 9.0p 8.5p
Segmental analysis
for the year ended 31 December
Sales Profit/(loss)
Restated3
2001 2000 2001 2000
£m £m £m £m
Programmes 2,310 2,430 138 3
Customer Solutions & Support 2,042 1,844 414 434
International Partnerships 1,816 1,858 102 117
Avionics 1,027 1,133 109 107
North America 2,577 1,674 250 165
Operations 1,277 1,331 39 (33)
Commercial Aerospace 3,021 2,868 220 149
Centre 28 47 (12) 8
14,098 13,185 1,260 950
Less: intra-group (960) (1,000)
Net interest (177) (91)
1,083 859
Goodwill amortisation, including joint ventures (495) (373)
Exceptional items (note 3) (518) (307)
13,138 12,185 70 179
1 before goodwill amortisation and exceptional items
2 as restated - see note 8
3 as restated - see note 9
Review of operations
Programmes
2001 2000
Order book £10.0bn £10.1bn
Sales £2.3bn £2.4bn
Profit1 £138m £3m
Number of employees 12,400 13,100
As expected, reduced aircraft deliveries and export construction activities have
influenced the results of our Programmes business group with profit1 of £138m
(2000 £3m) on lower sales of £2.3bn (2000 £2.4bn).
First flight of the production-standard Eurofighter Typhoon is scheduled for
early 2002, leading towards customer acceptance in the second half of 2002.
46 Hawk aircraft and airframes were delivered during the year, 6 less than in
2000. Hawk remains an important element of the Programmes marketing campaign,
including prospects for the selection of Hawk as the UK MoD's fast jet solution
to its Military Flying Training Systems requirement.
The largest of our naval programmes have had a successful year. In particular,
the UK Government committed to a further three Type 45 Destroyers in July 2001.
The design and build of Astute, the UK's next generation nuclear-powered attack
submarine programme, continues to make progress.
As previously indicated Programmes profit contribution is expected to
reduce in 2002. With several programmes progressing into production over the
coming years, and significant overhead reductions achieved this year, a good
medium-term outlook is anticipated with significant sales growth by 2004.
Customer Solutions & Support
2001 2000
Order book £2.6bn £2.8bn
Sales £2.0bn £1.8bn
Profit1 £414m £434m
Number of employees 8,900 8,700
Activity on the Al Yamamah programme progressed as planned with the programme
continuing to offer support services and training. The business has benefited
this year from higher spares activity on aircraft in service.
During 2001, the first orders for 10-year Integrated Platform Support have been
received from the UK MoD. These cover Tornado support for avionics equipment and
for structural repairs. Major investments are being made in information
technology and our support infrastructure to deliver these Integrated Platform
solutions across all the sectors in which we operate.
Bidding activity across all sectors is high and a number of major prospects will
reach the next decision phase in 2002. Most notable of these are Private Finance
Initiatives such as for the Future Strategic Tanker Aircraft. With our joint
venture partners we are also bidding for a 10-year extension of our existing
contract to run the Portsmouth Naval Base repair facility.
International Partnerships
2001 2000
Order book £5.6bn £6.3bn
Sales £1.8bn £1.9bn
Profit1 £102m £117m
Number of employees2 16,500 18,300
The result for the year reflected a poor performance by Astrium - our space
joint venture with EADS - in which we have a 27.5% economic interest. Astrium,
operating in a challenging commercial satellite market, reported an operating
loss for the year. Actions are in hand to address this performance shortfall.
A significant achievement during the year was the completion of the
restructuring of our existing joint venture interests in Matra BAe Dynamics and
AMS to form MBDA and a reconstituted AMS. This has positioned us well to grow
and compete in the major global markets in which these businesses operate. A
rationalisation programme is underway following this restructuring.
MBDA has been outstandingly successful in building an order book that stood at
£7.4bn at the end of 2001. The performance of this business is expected to
improve as this order book moves from development to production.
Saab AB, in which BAE SYSTEMS holds a 35% interest, performed in line with our
expectations. The synergies associated with the Celsius acquisition were
delivered and a strong order book maintained. The outlook for Saab's
defence-related activities remains positive.
Avionics
2001 2000
Order book £2.9bn £2.8bn
Sales £1.0bn £1.1bn
Profit1 £109m £107m
Number of employees 10,300 11,400
Eurofighter Typhoon equipment deliveries were weighted towards the end of the
year and were a driver behind this second half improvement. Our delivery rate on
Captor radars for Eurofighter Typhoon will accelerate through 2002. Significant
additional Eurofighter Typhoon work was secured during the year with the award
of an order worth over £300m for the first tranche of the defensive aids sub-
system (DASS).
2002 offers further opportunities to grow the order book with participation in
major programmes such as JSF. During the year, a contract in excess of AUS$300m
(£100m) was awarded to BAE SYSTEMS Australia for an Airborne Early Warning and
Control System. Good progress has been made in aligning technology capabilities
between our UK and Australian operations and a rationalisation programme has
been undertaken to maximise cost efficiency.
North America
2001 2000
Order book £2.4bn £2.4bn
Sales £2.6bn £1.7bn
Profit1 £250m £165m
Number of employees 20,900 23,000
Integration of Control Systems and Aerospace Electronic Systems (AES), has been
completed, and non-core activities were successfully divested during 2001.
The award of the JSF contract in October 2001 was an important milestone for our
North America business, which has been selected as a major supplier of systems
and equipment on the programme. In the US, in addition to the JSF programme, it
is a major sub-system contractor on the F-22 and F/A-18E/F. The company also has
substantial involvement in many aircraft in service with the US armed forces,
including the F-15, F-16, AV-8B and AH-64.
In addition, major contracts have been received following Pentagon approval to
commence low-rate initial production of the F-22 fighter. These decisions secure
significant long-term work and extend the long list of military aircraft
programmes on which BAE SYSTEMS participates in the US and Europe.
Operations
2001 2000
Order book £3.8bn £4.6bn
Sales £1.3bn £1.3bn
Profit/(loss) 1 £39m £(33)m
Number of employees 13,800 15,300
Our Operations business group has continued the recovery in profitability
reported at the half year. In line with our plans, full year results have moved
to a profit1 of £39m from a loss of £33m in 2000.
Activity on the contract to supply three Offshore Patrol Vessels to Brunei is
progressing well with the first of class having successfully completed sea
trials in December.
The Auxiliary Oiler programme has been difficult and a delay of six months was
encountered during 2001. The programme has now stabilised and acceptance of the
two ships are planned during the first half of 2002. The Landing Platform Dock
programme has also presented some technical challenges and much effort is being
put into meeting the acceptance of the first ship for the second half of 2002
in line with the customer's requirements.
RO Defence has performed well during the year and a long-term agreement with the
UK MoD for the supply of explosives and ammunition provides a strong base.
Development of the M777 Lightweight Field Howitzer for the US Armed Forces is
progressing well.
Commercial Aerospace
2001 2000
Order book £20.1bn £16.1bn
Sales £3.0bn £2.9bn
Profit1 £220m £149m
Number of employees2 11,900 10,900
The Commercial Aerospace results reflect the strong performance of Airbus SAS,
with our 20% interest contributing sales in 2001 of £2.6bn from deliveries of
325 aircraft.
Airbus SAS took firm orders for 375 aircraft before cancellations of 101
aircraft. The market for large commercial jets weakened considerably after 11
September with a number of airlines choosing to defer deliveries. As a
consequence the production plans have been revised downwards with deliveries of
around 300 aircraft now anticipated for 2002.
Market interest in the 550-650-seat A380 airliner family has been intense since
its launch, with firm orders for 85 aircraft at year end. The A380 is expected
to enter service in 2006.
BAE SYSTEMS Aircraft Services Group (ASG) has been affected very significantly
by the commercial aerospace market downturn and a rationalisation programme was
announced in November 2001, which included the cessation of regional jet
production. The measures announced draw a line under the company's exposure to
regional jet manufacturing and the financial risks inherent in the regional
aircraft market. ASG's focus in the future is primarily in providing full
support for all our in-service regional aircraft.
1 before goodwill amortisation and exceptional items
2 including share of joint venture employees
Consolidated profit and loss account
for the year ended 31 December
Restated1
Total Total
Notes 2001 2001 2000 2000
£m £m £m £m
Sales 13,138 12,185
Less: adjustment for share of joint venture sales (4,097) (2,539)
Turnover 9,041 9,646
Operating costs
Excluding goodwill amortisation and exceptional items (8,085) (8,839)
Goodwill amortisation (397) (330)
Exceptional items 3 (136) (288)
(8,618) (9,457)
Operating profit 423 189
Share of operating profit of joint ventures
Excluding goodwill amortisation and exceptional items 304 143
Goodwill amortisation (98) (43)
Exceptional items 3 (12) (19)
194 81
617 270
Non-operating exceptional item
Cessation/reorganisation of commercial aerospace activities 3 (370) -
Profit before interest 247 270
Excluding goodwill amortisation and exceptional items 1,260 950
Goodwill amortisation (495) (373)
Exceptional items (518) (307)
Interest
Net interest (174) (114)
Share of net interest of joint ventures (3) 23
(177) (91)
Profit on ordinary activities before taxation 70 179
Tax
Tax on profit excluding exceptional items (346) (270)
Tax on exceptional items 148 72
(198) (198)
Loss on ordinary activities after taxation (128) (19)
Equity minority interests (6) (6)
Loss for the financial year (134) (25)
Dividends 5
Equity: ordinary shares (275) (257)
Non-equity: preference shares (21) (21)
(296) (278)
Retained loss (430) (303)
Basic and diluted earnings per share
Including goodwill amortisation and exceptional items (5.1)p (1.5)p
Excluding goodwill amortisation and exceptional items 23.4p 18.8p
1 see note 8
The results for 2001 and 2000 arise from continuing activities.
Consolidated balance sheet
as at 31 December
Restated1
2001 2000
£m £m
Fixed assets
Intangible assets 6,909 7,274
Tangible assets 1,776 2,356
Investments
Share of gross assets of joint ventures 7,248 5,676
Share of gross liabilities of joint ventures (5,826) (4,988)
Share of joint ventures 1,422 688
Others 35 40
1,457 728
10,142 10,358
Current assets
Stocks 1,046 1,536
Debtors due within one year 2,633 2,210
Debtors due after one year 811 637
Investments 1,069 1,159
Cash at bank and in hand 1,505 1,475
7,064 7,017
Liabilities falling due within one year
Loans and overdrafts (1,256) (2,397)
Creditors (5,281) (4,743)
(6,537) (7,140)
Net current assets/(liabilities) 527 (123)
Total assets less current liabilities 10,669 10,235
Liabilities falling due after one year
Loans (2,119) (1,063)
Creditors (611) (619)
(2,730) (1,682)
Provisions for liabilities and charges (1,281) (1,476)
6,658 7,077
Capital and reserves
Called up share capital 143 143
Share premium account 374 341
Statutory reserve 202 202
Other reserves 5,438 5,440
Profit and loss account 481 851
Shareholders' funds
Equity: ordinary shares 6,372 6,711
Non-equity: preference shares 266 266
6,638 6,977
Equity minority interests 20 100
6,658 7,077
1 see note 8
Consolidated cash flow
for the year ended 31 December
2001 2000
£m £m
Net cash inflow from operating activities
Operating profit 423 189
Depreciation, amortisation and impairment 636 639
Profit on disposal of fixed assets and investments (42) (29)
Movement in provisions for liabilities and charges excluding deferred tax (207) (215)
(Increase)/decrease in working capital
Stocks (340) 47
Debtors (716) 1,620
Creditors 612 (580)
Customer stage payments 405 223
771 1,894
Cash flow statement
Net cash inflow from operating activities 771 1,894
Dividends from joint ventures 19 18
Returns on investments and servicing of finance (210) (97)
Taxation (94) (59)
Capital expenditure and financial investment (359) (283)
Acquisitions and disposals
Acquisitions - (1,605)
Disposal of subsidiary undertakings and joint ventures 135 115
Equity dividends paid (266) (202)
Net cash outflow before financing and management of liquid resources (4) (219)
Management of liquid resources 162 497
Financing 495 (123)
Net increase in cash available on demand 653 155
Reconciliation of net cash flow to net movement in net funds
Net increase in cash available on demand 653 155
Net decrease in liquid resources (162) (497)
(Increase)/decrease in other loans included within net funds (465) 194
Change in net funds from cash flows 26 (148)
Other non cash movements (1) 48
Net increase/(decrease) in net funds 25 (100)
Net funds at 1 January (826) (726)
Net funds at 31 December (Note 7) (801) (826)
Reconciliation to movement in net debt as defined by the group
Net increase/(decrease) in net funds 25 (100)
Decrease in cash on customers' account 43 26
Net movement for the year 68 (74)
Statement of total recognised gains and losses
for the year ended 31 December
Restated1
2001 2000
£m £m
(Loss)/profit for the financial year
Group, excluding joint ventures (200) (103)
Joint ventures 66 78
Total loss for the financial year (134) (25)
Currency translation on foreign currency net investments - subsidiaries 61 (28)
Currency translation on foreign currency net investments - joint ventures (10) 8
Goodwill on disposal of Flight Simulation and Training Inc. 18 -
Impairment of land and buildings - (14)
Other recognised gains and losses relating to the year (net) 69 (34)
Total recognised gains and losses relating to the year (65) (59)
Prior year adjustment in respect of the adoption of FRS 19 (see note 8) (175)
Total recognised gains and losses (240)
Reconciliation of movements in shareholders' funds
for the year ended 31 December Restated1
2001 2000
£m £m
Loss for the financial year (134) (25)
Dividends (296) (278)
(430) (303)
Issuance of shares to QUEST 18 17
Exercise of share options, warrants and dividend scrip issue 4 100
Other recognised gains and losses (net) 69 (34)
Net decrease in shareholders' funds (339) (220)
Opening shareholders' funds (restated) 6,977 7,197
Closing shareholders' funds 6,638 6,977
1 see note 8
Notes to the preliminary results
1 Fixed asset investments
Airbus SAS
Airbus SAS was formed with effect from 1 January 2001. This involved the
contribution by the previous Airbus Industrie GIE (AI) partners, BAE SYSTEMS and
European Aeronautic Defence and Space Company (EADS), of their wholly owned
Airbus operations together with AI itself.
BAE SYSTEMS holds a 20% interest in the new company, with EADS holding the
balance. The group's interest is accounted for as a joint venture as unanimous
approval by the shareholders is required on key operational and financial
matters.
The transaction has been accounted for as an exchange of interests, reflecting
its economic substance, with the group exchanging its wholly owned Airbus
operation in return for a 20% interest in the enlarged entity.
Provisional fair value adjustments have been applied to operations not
previously recorded within the BAE SYSTEMS group. The only material fair value
adjustment made in 2001 relates to the forward foreign exchange contracts held
by the former EADS Airbus operations. These commitments have been revalued by
the group based on arm's length market prices prevailing for such contracts as
at the date of formation. Goodwill amounting to £991m has arisen on this
transaction.
Restructuring of MBDA and AMS
On 18 December 2001 the group completed an exchange of interests with EADS and
Finnmeccanica to enlarge the jointly owned missile business MBDA. Matra BAe
Dynamics (MBD), the group's previous joint venture with EADS, and the missiles
business of Alenia Marconi Systems, the group's previous joint venture with
Finnmeccanica, have been pooled with AMM, the missiles business previously owned
by EADS together with a cash injection from Finnmeccanica to form the enlarged
MBDA. The goodwill previously recognised by the group related to MBD and the
missiles business of Alenia Marconi Systems, is now reflected in the goodwill
attributed to the group's interest in MBDA.
As part of this exchange the group pooled its previously wholly owned Combat &
Radar Systems (C&RS) business with the non-missiles business within its Alenia
Marconi Systems joint venture with Finnmeccanica to form the enlarged AMS
business.
The economic substance of these transactions is that the group is exchanging its
50% share in MBD, its 50% share in Alenia Marconi Systems and its investment in
C&RS for a 37.5% interest in MBDA and a 50% interest in AMS.
Accordingly, the group has accounted for this transaction as an exchange of
interests, with provisional fair values attached to the AMM business which was
not previously part of the group. The result of these transactions is a net
decrease in goodwill of £36m.
Control Systems and Aerospace Electronics Systems (AES) businesses - fair value
amendments
The group acquired two former Lockheed Martin businesses during 2000
- the Control Systems business on 25 September and the AES business on 27
November. Provisional fair values were assigned in the 2000 accounts to the net
assets acquired. These have been reviewed during 2001 with amendments made to
finalise the fair values. The main amendments concern provisions where amounts
were included as provisional fair values in respect of contract risks, onerous
contracts and other commitments. These have been updated to reflect the
conditions more accurately as at the date of acquisition based on the
information and knowledge which has subsequently come to light during the review
in 2001. The net effect is an increase in goodwill of £123m.
2 Disposals
Business disposals
In April 2001 the group disposed of its Flight Simulation and Training business
based in Tampa, Florida to CAE, Toronto, Canada, for a cash consideration of
US$75m (£53m).
In April 2001 the group disposed of its 54% interest in BAE SYSTEMS Canada Inc.
to ONCAP for a cash consideration of Can$310m (£138m).
In June 2001 the group disposed of its 50% interest in its US joint venture, LH
Systems, to Leica Geosystems for a cash consideration of US$15m (£11m).
In September 2001, the group's partner in the Thomson Marconi Sonar (TMS) joint
venture, Thales, exercised its option to purchase the group's 49.9% holding in
TMS for a cash consideration of Euro85m (£53m).
Net cash inflow on business disposals (after accounting for cash retained in
those businesses of £120m) amounted to £135m in the year (2000 £115m).
3 Exceptional items
2001 2000
£m £m
Operating exceptional items
Prior year rationalisation programmes (95) (156)
BAe/MES integration costs (53) (151)
(148) (307)
Non-operating exceptional item
Cessation/reorganisation of
commercial aerospace activities (370) -
Exceptional loss included within
profit before interest and tax (518) (307)
Prior year rationalisation programmes
Rationalisation programmes were initiated in 1999 and 2000 in response to
capacity excesses across a number of business groups.
The total costs associated with these programmes were estimated at the time of
the respective announcements at £475m. To date costs of £449m have been recorded
as exceptional charges. The profit and loss impact in 2001 has been a charge of
£95m (2000 £156m), before a tax credit of £25m (2000 £35m). The net cash outflow
in 2001 amounted to £89m (2000 £143m), before taking into account the cash
benefits of tax relief.
BAe/MES integration costs
Following the merger of BAe and MES on 29 November 1999 the group embarked on a
process of integrating the businesses within the enlarged organisation. Costs in
2001 associated with this process amounted to £53m (2000 £151m) before a tax
credit of £12m (2000 £37m). The net cash outflow in 2001 amounted to £53m (2000
£141m), before taking into account the cash benefits of tax relief.
Cessation/reorganisation of commercial aerospace activities
As a result of the group's review of its commercial aerospace activities the
group has decided to close its regional jet manufacturing operations and
reorganise certain other commercial aerospace activities at a cost of £400m. The
anticipated costs in respect of the closure relate primarily to the cessation of
RJ/RJX assembly and are estimated to total £250m before a tax credit of £75m.
The associated net cash outflow in 2001 amounted to £2m. A further £120m has
been charged in 2001 for the related restructuring of other commercial aerospace
activities, before a tax credit of £36m. The associated net cash outflow in 2001
amounted to £nil. The remaining £30m exceptional item is expected to be charged
in 2002.
4 Commercial aircraft financing
The group provides guarantees in respect of residual values or head lease and
finance payments in respect of certain commercial aircraft sold. The group's
gross exposure in respect of these arrangements was £3,379m at 31 December 2001.
To reduce its exposure from these guarantees, in 1998 the group entered into a
Financial Risk Insurance Programme (FRIP) which, subject to a first loss borne
by the company in respect of potential shortfalls in contracted and expected
income, provides insurance cover from a syndicate of leading insurance
companies. This covers a significant proportion of the group's exposure existing
at the commencement of the insurance period, including those aircraft where the
group has provided residual value guarantees. Full provision has been made to
cover the first loss on a net present value basis.
Since commencing the FRIP, the group has sold further aircraft with residual
value guarantees which start to mature in 2005. Included within the gross
exposure above, the group had given uninsured residual value guarantees for 49
aircraft at 31 December 2001 (2000 40 aircraft), totalling some £357m (2000
£268m). The directors consider that the group's exposure to these guarantees is
covered by the residual values of the related aircraft.
The group is also exposed to actual and contingent liabilities arising from
commercial aircraft financing and residual value guarantees given by its joint
venture partners, Saab AB and Airbus SAS. Where these partners are exposed to
financial risks from aircraft financing and residual value guarantees, provision
is made against the expected net exposure on a net present value basis, after
taking into account the expected future sub-lease income and residual values of
the aircraft. The group's exposure is limited to its respective shareholding in
each of these joint ventures and is reported within its share of gross
liabilities of joint ventures. Further, Saab AB also has a Financial Risk
Insurance Programme similar in nature to that previously implemented by BAE
SYSTEMS. This programme covers the majority of the Saab aircraft and in
consequence significantly reduces the risk of potential future liabilities in
that company.
5 Dividends
The Directors propose a final dividend of 5.5p per ordinary share which, with
the interim dividend, makes a total dividend of 9.0p per ordinary share for the
year (2000 8.5p). The dividend will be paid on 5 June 2002 to shareholders
registered on 19 April 2002. The ex-dividend date will be 17 April 2002.
Shareholders who do not at present participate in the company's Dividend
Reinvestment Plan and wish to receive the final dividend in shares rather than
cash should complete a mandate form for the Dividend Reinvestment Plan and
return it to the company's registrars no later than 10 May 2002.
6 Annual General Meeting
This year's Annual General Meeting will be held on 3 May 2002. A resolution will
be put to shareholders at the meeting to renew the authority to make market
purchases of the company's shares up to a maximum of 10 per cent of the share
capital of the company. Further details of the resolution will be included in
the notice of Annual General Meeting that will be sent to shareholders at the
end of March 2002.
7 Net debt
The company's net debt position comprises:
2001 2000
£m £m
Current assets
Current asset investments 1,069 1,159
Cash at bank and in hand 1,505 1,475
Current liabilities
Loans and overdrafts (1,256) (2,397)
Liabilities falling due after one year
Loans (2,119) (1,063)
Net funds (801) (826)
Cash on customers' account (30) (73)
Net debt (831) (899)
8 Prior year adjustment
FRS 19 - Deferred Tax has been adopted in these accounts for the first time.
Comparative tax numbers have been restated, resulting in a net reduction in net
assets of £175m.
9 Presentation of sales
In prior years, sales to joint ventures were eliminated in full before the
presentation of sales by business group. As a result of the formation of Airbus
SAS the directors have reconsidered this presentation and have determined a more
appropriate treatment is, at business group level, to eliminate only the sales
to JVs within the respective business group. Sales to JVs within other business
groups are included in the intra group sales adjustment. Comparative figures
have been restated accordingly.
10 FRS 17 - Post retirement benefit schemes
The group intends to adopt FRS 17 fully in 2003. Had it been adopted in 2001 a
shortfall of post retirement pension and healthcare assets over the respective
liabilities amounting to £776m would have been recognised, £84m of which relates
to healthcare schemes and is already provided for. Of the balance, £380m is
covered by existing cash commitments to cover known deficits. The balance of the
deficit under FRS 17, representing just 3.3% of assets under management, has
been assessed at a time when equity markets are fairly lowly valued. FRS 17
would not have resulted in any significant change to 2001 earnings.
11 Other information
The financial information for the years ended 31 December 2001 and 31 December
2000 contained in this preliminary announcement was approved by the Board on 13
February 2002. This announcement does not constitute statutory accounts of the
company within the meaning of section 240 of the Companies Act 1985.
Statutory accounts for the year ended 31 December 2000 have been delivered to
the Registrar of Companies. Statutory accounts for the year ended 31 December
2001 will be delivered to the Registrar of Companies following the company's
Annual General Meeting. The auditors have reported on both these sets of
accounts. Their reports were not qualified and did not contain statements under
section 237(2) or (3) of the Companies Act 1985.
BAE SYSTEMS plc
Registered office: 6 Carlton Gardens, London SW1Y 5AD
Telephone 01252 373232
www.baesystems.com
This information is provided by RNS
The company news service from the London Stock Exchange
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