BAE Systems plc 6 Carlton Gardens Annual Review 2006 London SW1Y 5AD United Kingdom Telephone +44 (0)1252 373232 Registered in England and Wales No. 1470151 www.baesystems.com Cover image: BAE Systems, with its partners, is delivering the Type 45 anti-air warfare destroyer. The Group has responsibility for the design, development and delivery for the class. The through-life support arrangements are now under discussion, with initial packages on contract. Contents An overview of our business 1 Highlights, outlook and results in brief 2 Chairman’s letter 3 Chief Executive’s review Strategy and markets 6 Strategy and markets 8 Markets: United States 10 Markets: United Kingdom 12 Markets: Rest of World Our performance 14 Electronics, Intelligence & Support 16 Land & Armaments 18 Programmes 20 Customer Solutions & Support 22 Integrated Systems & Partnerships 24 HQ and other businesses 25 Summarised financial review 26 Corporate responsibility Information key Corporate governance and financial statements Cross reference 28 Board of directors Shaping our business 26 within report 30 Corporate governance For more information visit 33 Summarised financial statements www.baesystems.com 36 Auditors’ statement 37 Shareholder information Cautionary statement All statements other than statements of historical fact included in this document, including, without limitation, those regarding the financial condition, results, operations and businesses of BAE Systems and its strategy, plans and objectives and the markets and economies in which it operates, are forward-looking statements. Such forward-looking statements which reflect management's assumptions made on the See overleaf for an overview basis of information available to it at this time, involve known and unknown risks, uncertainties and other important factors which of our business today could cause the actual results, performance or achievements of BAE Systems or the markets and economies in which BAE Systems operates to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Nothing in this document shall be regarded as a profit forecast. BAE Systems plc and its directors accept no liability to third parties in respect of this report save as would arise under English law. In particular, section 463 Companies Act 2006 limits the liability of the directors of BAE Systems plc so that their liability is solely to BAE Systems plc. REAL PERFORMANCE. REAL ADVANTAGE. Shareholder information BAE Systems at a glance BAE Systems is the premier global defence and Group Registered office Details of software and equipment American Depositary Receipts aerospace company delivering a full range of products 6 Carlton Gardens requirements are given on the website. The BAE Systems plc American Depositary – Good financial performance London Receipts (ADRs) are traded on the – Continued growth from US businesses Shareholder dealing service £13,765m 88,600 SW1Y 5AD Over The Counter market (OTC) under and services for air, land and naval forces as well – Implementation of UK Defence Industrial Hoare Govett Limited offers a low cost Sales for 2006 Number of employees, United Kingdom the symbol BAESY. One ADR represents Strategy underway postal dealing service enabling UK resident as advanced electronics, information technology including share of employees Telephone: +44 (0)1252 373232 four BAE Systems plc ordinary shares. shareholders to buy or sell BAE Systems plc solutions and customer support services. of equity accounted investments Company website: www.baesystems.com shares. Basic commission is 1%, subject to JPMorgan Chase Bank, N.A. is the Registered in England & Wales, No.1470151 a minimum charge of £15.00. If you require depositary. further information please contact: Registrars If you should have any queries, Lloyds TSB Registrars (0140) Hoare Govett Limited please contact: Telephone: +44 (0)20 7678 8300 The Causeway, Worthing JPMorgan Chase Bank, N.A. Electronics, Land & Armaments Programmes Customer Solutions Integrated Systems HQ and other businesses West Sussex BN99 6DA This notice has been approved by Hoare JPMorgan Service Center Intelligence & Support & Support & Partnerships United Kingdom Govett Limited which is authorised and PO Box 3408 Telephone: 0870 600 3982 regulated by the Financial Services Authority. South Hackensack NJ 07606-3408 Provides a variety of military Provides design, development, Comprises the Group’s air systems, Provides partnered, through-life A portfolio of high-technology defence Comprises the regional aircraft asset (+44 121 415 7058 from outside the UK) Principal Principal USA communications, electronic production and through-life support naval ships and submarines activities, support and capability solutions to the systems businesses comprising the management and support activities, ShareGift operations operations If you have any queries regarding your identification, navigation and guidance and upgrade of armoured combat with the UK MoD its principal UK MoD and manages the businesses wholly-owned Integrated System head office and UK shared services The Orr Mackintosh Foundation operates a Toll free telephone number: shareholding, please contact the registrars. systems, network-centric warfare vehicles, naval guns, missile customer. in Saudi Arabia and Australia. Technologies and Underwater Systems activity, including research centres charity donation scheme for shareholders 800 990 1135 solutions and a broad range of launchers, artillery systems and businesses, together with a 37.5% and property management. with small parcels of shares which may be Telephone number from outside the US: support solutions, including major intelligent munitions. interest in the pan-European MBDA uneconomic to sell. Details of the scheme are +1 201 680 6630 ship repair activities for the US Navy. joint venture, a 20.5% interest in Saab available from ShareGift at www.sharegift.org of Sweden and a 50% interest in the or by telephone on 020 7828 1151. Website: www.adr.com Gripen International joint venture. Email: [email protected] Shareview service Share price information The Shareview service from our registrar, The middle market price of the Company’s Financial calendar Lloyds TSB Registrars, gives shareholders: ordinary shares on 31 December 2006 Financial year end 31 December – direct access to data held on their behalf was 425.75p and the range during the Main operating Main operating on the share register including recent year was 329p to 449.75p. Annual General Meeting 9 May 2007 share movements and dividend details; locations locations Daily share prices are available in the UK Preference shares conversion and on the FT Cityline service on 0906 843 date (final opportunity) 31 May 2007 – the ability to change their address or 0000. At the menu following the FTSE 100 2006 final ordinary dividend payment instructions on-line. index, select option 2 for share prices and dividend payable 1 June 2007 To sign up for Shareview you need the the relevant four-digit code shown below: 2007 half yearly preference ‘shareholder reference’ printed on your BAE Systems plc ordinary shares – dividend payable 2 July 2007 proxy form or dividend stationery. There enter the four-digit code 1890 is no charge to register. US, Global US, UK, Sweden, South Africa UK, Global UK/Europe, Middle East, Australia UK/Europe UK 2007 interim results Major markets Major markets BAE Systems plc preference shares – announcement 9 August 2007 When you register with the site, you can enter the four-digit code 5174 Share of 2006 Share of 2006 register your preferred format (post or 2007 interim ordinary e-mail) for shareholder communications. Calls are charged at 60p per minute dividend payable 30 November 2007 Group sales Group sales If you select ‘e-mail’ as your mailing at all times. (before elimination £4,007m £2,115m £2,927m £3,180m £1,748m £295m (before elimination 2007 full year results preference, you will be sent shareholder Alternatively you can view teletext of intra-group sales) of intra-group sales) – preliminary announcement February 2008 28% 15% 21% 22% 12% 2% communications, such as proxy forms and or a similar service. annual/interim results by e-mail instead of – report and accounts April 2008 Dividend reinvestment plan post, as long as this option is available. 2007 final ordinary The company offers holders of its ordinary dividend payable June 2008 If you have your dividends paid straight to shares the option to elect to have their Key points – Strong demand for electronic – Benefiting from high volume of reset – Good schedule and cost adherence – Tornado ATTAC agreement signed – European portfolio restructuring – Aerostructures sale completed Key points your bank account, and you have selected dividend reinvested in shares purchased ‘e-mail’ as your mailing preference, you can n warfare systems and upgrade activity – Programmes transitioning from in the UK complete – UK pension funding deficit o in the market instead of cash. If you would i from 2006 from 2006 t – Key support solutions business wins – Good progress in next-generation development to production – Kingdom of Saudi Arabia – Major Insyte communication system addressed also collect your tax voucher electronically. like to make this election, please request a m – Group-wide capabilities combine technology programmes – Hawk and Nimrod production modernisation programme underway wins in UK Instead of receiving the paper tax voucher, r a dividend reinvestment