Salam update

RNS Number : 0042V

BAE SYSTEMS PLC

04 January 2012

 



BAE Systems - Progress on Salam contract amendments

4 January 2012

With the announcement of the Group's results in February 2011, BAE Systems identified that discussions had commenced with its customer in the Kingdom of Saudi Arabia regarding changes to the Salam programme.  The proposed changes relate to final assembly of the last 48 of the 72 Typhoon aircraft, the creation of a maintenance and upgrade facility in the Kingdom of Saudi Arabia, initial provisioning for subsequent insertion of Tranche 3 capability in respect of the last 24 aircraft of this order and formalisation of price escalation.

The achievement of the Group's previous guidance for 2011, of underlying earnings per share broadly similar to that for 2010 (restated), included some dependency on the conclusion of the Salam negotiations. 

Good progress on these discussions has been made in recent weeks with budgets approved in the Kingdom in December on all items other than the price escalation where negotiations will now continue into 2012.  Budgets have also been established for the next five years of support on the core Saudi British Defence Cooperation Programme (SBDCP) including an upgrade of the training environment.  Formal contracts under these budgets are being progressed.

These budget approvals underpin both the Salam and SBDCP programmes.  Salam trading performance relating to the formalisation of price escalation, including significant cash payment, will be deferred until ongoing negotiations have been concluded. 

In September 2010 BAE Systems announced that, following notification from the Government of Trinidad and Tobago (GoTT) of its intentions to cancel a contract for three Offshore Patrol Vessels (OPV), it would write down the value of the vessels and take a charge to the 2010 accounts of £100 million.  BAE Systems remains in arbitration with GoTT regarding its contractual position.  Following signature of a contract for the sale of these vessels to the Brazilian Navy, the carrying value of the OPVs has been increased. 

The uplift in carrying value of the OPVs is expected to largely mitigate the earnings per share impact of the deferred Salam trading in the Group's 2011 results. This excludes the benefit to underlying earnings per share of approximately 5.9 pence arising from the UK R&D tax credit agreement, announced on 15 December 2011.

Issued by:

BAE Systems plc

London

 

END

 

 

TSTFMGGMKDDGZZM