Highlights, Outlook and Results in Brief

Preliminary Announcement Highlights, outlook and results in brief Results in brief Restated6 Results from continuing operations 2006 2005 Sales1 £13,765m £12,581m EBITA2 £1,207m £909m Operating profit £1,054m £761m Underlying earnings3 per share 23.8p 18.4p Basic earnings per share4 19.9p 13.9p Order book5 £31.7bn £30.8bn Other results including discontinued operations Dividend per share 11.3p 10.3p Cash inflow from operating activities £778m £2,099m Net cash/(debt) as defined by the Group £435m £(1,277)m Highlights – Good financial performance – Continued growth from US businesses – Implementation of UK Defence Industrial Strategy underway – European business portfolio restructuring completed – UK pension funding deficit addressed – Airbus sale completed – Underlying earnings3 per share up 29.3% at 23.8p – Dividend increased 9.7% to 11.3p per share for the year Outlook Looking forward to 2007 we anticipate a further year of good growth led by our US businesses, in particular from the Land & Armaments sector, and from further progress in the Programmes business. We anticipate good operating cash flow again in 2007. 1 including share of equity accounted investments 2 earnings before amortisation and impairment of intangible assets, finance costs and taxation expense 3 earnings excluding amortisation and impairment of intangible assets, non-cash finance movements on pensions and financial derivatives, and uplift on acquired inventories (see note 5) 4 basic earnings per share in accordance with International Accounting Standard 33 5 including share of equity accounted investments’ order books and after the elimination of intra-group orders of £0.8bn (2005 £0.9bn) 6 restated following the sale of Airbus SAS www.baesystems.com 1 Preliminary Announcement Preliminary results statement A strong platform for future performance Year in review progressing towards a contract for 72 contract to provide software development BAE Systems delivered another year of good Typhoon aircraft. and management support services to the financial performance, underpinned by Department of Homeland Security. We have continued to divest those programme schedule and cost adherence businesses that were non-core to our BAE Systems continues to look for across the Group and reflecting the benefits strategy. In May the Group initiated the sale opportunities to grow its US business by now flowing from our world-class Lifecycle of its 20% shareholding in Airbus. The acquisition following the successful Management and Performance Centred decision to sell the Airbus stake was additions to the Group over recent years. Leadership processes. consistent with our strategy of maximising Progress has been slowed by sustained high Sales1 increased 9% from £12,581m to value from that business, recognising it was valuations of businesses that would align £13,765m. Organic growth was 5%. Sales in facing an increasing number of challenges. with the Group’s strategy. Further the full year from the former United Defense The sale was completed in October following acquisitions will have to continue to meet activities, acquired in June 2005, were shareholder approval. The proceeds will be our strict value creation criteria. In the £1,670m (2005 £789m). directed to developing the core business meantime, organic growth in the US and a repurchase of up to £500m of the businesses continues. EBITA2 increased 33% to £1,207m (2005 Group’s shares is underway. £909m). The growth includes the benefit of The focus on current operations in a full year’s trading from the former United The sale of the Aerostructures business was Afghanistan and Iraq is generating a high Defense activities, acquired in June 2005, completed in March and the sale of Atlas level of armoured vehicle reset activity such which contributed EBITA2 of £169m (2005 Elektronik was completed in August. as the return of Bradley vehicles to ‘as new’ £60m) in the year. As reported at the half condition. Substantial funding for such reset A big concern for the Group in recent years year, included within EBITA2 is a £61m one- activities has been available through has been the funding of its pension off accounting gain in the Electronics, supplemental budgets in support of current schemes. Agreements were concluded Intelligence & Support business group military operations. Supplemental spending during 2006 to address funding deficits. The arising from a reduction in the net pension is expected to continue in the near term but revised funding plan in the UK schemes liability following the changes to the the Group’s business plans are based on includes a combination of higher company calculation of final US pensionable salaries. more prudent longer-term assumptions. and employee contribution rates, reductions Losses at Regional Aircraft amounted to in future benefits for employees and one-off BAE Systems is a leader in electronic £114m, these are reported within HQ and cash and asset contributions by the Group. warfare technology including electronic other businesses. This shared approach has achieved a good protection systems. Such advanced Return on sales (EBITA2 adjusted for uplift outcome for all parties. The Board is in protection systems are expected to continue on acquired inventories expressed as a consultation with the trustees of the to be a funding priority. percentage of sales) for the Group Group’s pension schemes to consider the Equipment modernisation is also expected increased from 7.6% to 8.8%. Return on implication of the Airbus sale on pension to continue and the Group is actively sales excluding the one-off pension gain scheme funding. involved in current and new generation land referred to above was 8.3%. systems, including Future Combat System US businesses Order book increased to £31.7bn, primarily variants. In addition, the digitised, A3, In the US, the integration of the former on US awards in the Land & Armaments version of the Bradley is a core element of United Defense activities into BAE Systems business and on securing the Availability the modernisation and modularisation of US has been completed successfully. The land, Transformation – Tornado Aircraft Contract forces. armaments and ship repair activities that (ATTAC) in Customer Solutions & Support. comprised the acquired United Defense BAE Systems is a high technology business The performance of the US businesses has business are performing well. and a major participant in force again been excellent with the Group’s transformation activities including new The Electronics, Intelligence & Support expansion in the US market over recent generation Intelligence, Surveillance and business continued to achieve growth ahead years generating good returns. Good Reconnaissance programmes. of the addressable US Department of progress has continued in the UK Defense (DoD) budget, with like-for-like As a result of strong positions in these businesses with programmes on track and sales up 6%. Contributing to this growth was priority areas, and notwithstanding meeting their key milestones. strong demand for electronic protection expectations for a flattening of growth in A number of export opportunities have also systems. The business continues to lay the overall defence spend, organic growth in the progressed, most notably in the Kingdom of foundations for sustained performance with US businesses is expected to continue at a Saudi Arabia where, under an agreement new business wins, including substantial level above the underlying DoD addressable between the Kingdom of Saudi Arabia and contracts for Common Missile Warning budget growth. the UK government, the Group is working to Systems to protect aircraft. modernise the Saudi armed forces including A number of significant new support business wins include the award of a prime 2 BAE Systems Preliminary Announcement 2006 Summarised income statement from continuing operations 2006 20054 UK businesses £m £m The performance on large complex weapon Sales1 13,765 12,581 system programmes in the UK has been EBITA2 1,207 909 good and is expected to continue to Amortisation (105) (77) progress as more programmes move to Impairment (34) (45) production. Net finance costs1 (174) (196) 1 Deliveries of Typhoon continue to schedule. Taxation expense (248) (147) 113 aircraft have been delivered to the four Profit for the year 646 444 partner nations including 38 now in service with the UK’s Royal Air Force (RAF). Basic earnings per share 19.9p 13.9p Underlying earnings3 per share 23.8p 18.4p Flight development of the Nimrod MRA4 Dividend per share 11.3p 10.3p programme continues and the formal production contract was received in July for nine aircraft together with an option for the conversion of the three aircraft currently in Exchange rates flight development to production standard. 2006 2005 In October, a production order for 28 Hawk £/€ – average 1.467 1.462 Mk128 aircraft for the RAF was secured. £/$ – average 1.844 1.819 Following the launch of the first of class £/€ – year end 1.484 1.455 Type 45 destroyer, outfitting is progressing £/$ – year end 1.957 1.718 to programme. The second ship was launched on 23 January 2007 and major Segmental analysis steel sections are also well underway for the third and fourth ships. The planned build Sales1 EBITA2 efficiencies from one ship to the next are 2006 20054 2006 20054 being met or exceeded. Following successful £m £m £m £m risk reduction, a small amount of profit has Electronics, Intelligence & Support 4,007 3,697 429 324 been recognised on the programme. Land & Armaments 2,115 1,270 168 42 Both of the Landing Ship Dock (Auxiliary) Programmes 2,927 2,819 167 133 ships originally contracted to BAE Systems Customer Solutions & Support 3,180 2,923 477 419 for the UK’s Royal Fleet Auxiliary were Integrated Systems & Partnerships 1,748 1,834 113 109 completed. The Group was asked to assist HQ and other businesses 295 471 (147) (118) with completion of the fourth ship in addition Intra-group (507) (433) – – to taking over lead yard responsibility for the ship class.

Load more