Final Results
BAE Systems PLC
1 March 2001
Preliminary Announcement 2000
BAE SYSTEMS
Overview of Results
Profit* before interest £950m
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Diluted earnings per share decreased 30%
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Dividend per share increased 6%
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Operating cash inflow £1.9bn
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Net debt at 31 December £0.9bn
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Order book increased 12% to £41.0bn
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* excluding goodwill amortisation and exceptional items
2000 Preliminary results statement
2000 has been an exciting and exacting year in successfully bringing together
two outstanding companies to form a global systems, defence and aerospace
company. The integration of British Aerospace and Marconi Electronic Systems
is now delivering the planned synergies.
Profit before interest, excluding goodwill amortisation and exceptional items,
was £950m (1999 proforma £1,115m) on sales of £12.2bn, and £859m after net
interest charges.
A significant issue affecting the 2000 result is the major reassessment of the
Nimrod contract, which resulted in a charge for the year of £300m. This had
the impact of reducing diluted earnings per share from 25.8 pence to 19.2
pence.
Cash performance across the business was strong with net operating cash
inflows of £1.9bn. After the US acquisitions of the Control Systems and AES
electronics businesses from Lockheed Martin for $2.3bn (£1.6bn) the resultant
net indebtedness of the group at the year end marginally increased to £0.9bn.
Order book at the year end is again strong at £41.0bn, benefiting from a £
1.2bn contract to design, develop, manufacture, test and deliver the first
Type 45 destroyers for the Royal Navy together with the strong market
performance from Airbus.
Order intake from the UK MoD is falling short of expected levels, which, with
lower than anticipated Hawk export orders, is resulting in a lower level of
activity. As a consequence capacity, primarily in the Programmes business
group, is being reduced with a restructuring programme resulting in
exceptional charges to profits for 2000 and 2001. This restructuring
programme, which was announced in January 2001, will strengthen the business
as it bridges the period between production of Tornado and Eurofighter Typhoon
military aircraft.
We have continued to make good progress with the rest of the business. The
agreement with our partner EADS to form an integrated joint company to manage
the Airbus business became effective 1 January 2001. Airbus is entering a
phase of strong profitable growth built on a forward order book of some 1,626
aircraft valued at $121bn. In addition further growth will be achieved with
the launch of the A380 family of very large, long range aircraft typically
seating 480/650 passengers. The new Airbus company, into which BAE SYSTEMS is
transferring its wing manufacturing facility in return for a 20% interest,
will generate substantial savings and enhance customer focus from a
streamlined organisation and result in a very significant uplift in value for
BAE SYSTEMS.
The acquisitions of the US Control Systems and AES electronics businesses are
a major step forward, further strengthening BAE SYSTEMS position as a
significant competitor in the key US defence market.
Looking to the future the results in 2001, excluding restructuring provisions,
are expected to be broadly unchanged compared with the underlying performance
in 2000 before the Nimrod charge. A resumption of growth in 2002 and beyond is
confidently anticipated as the company benefits from its investments in the US
and from Airbus growth, together with the progression of Eurofighter Typhoon
and naval programmes into the production phase.
In line with the Board's confidence in the resumption of growth an increase in
the dividend per share for the year to 8.5p (1999: 8.0p) is being proposed.
This dividend payment is covered 3.0 times against diluted earnings per share
before taking into account the Nimrod charge.
Commenting on these results, Sir Richard Evans, Chairman, said:-
'We have achieved our long-term objective of being positioned as a
world-leading systems, defence and aerospace company. In the short-term we
have had to face some challenges but have had some important successes as
well. Following the acquisitions in the US, the company has emerged as a
significant competitor in this important market and the restructuring of
Airbus into an integrated joint company will prove to be particularly valuable
to BAE SYSTEMS shareholders.'
John Weston, Chief Executive, added:-
'The merger has been a real success. We are, today, operating as one fully
integrated company and achieving everything we set out to do in this regard.
Looking ahead, BAE SYSTEMS is now a well-balanced company underpinned by a
strong order book, strong balance sheet and excellent cash generation.'
Summarised profit and loss account
for the year ended 31 December Restated (2)
2000 1999
£m £m
Sales 12,185 8,929
------------------------------------------------------- ---------------
--------Operating profit (1) 807
769
Share of operating profit/(loss) of joint ventures (1) 143 (6)
Net interest (1,2) (91) (9)
------------------------------------------------------ ---------------- --------
Profit before tax, goodwill amortisation and exceptional 859 754
items
------------------------------------------------------ ------------ ---------
Profit before tax 179 459
Tax (186) (131)
Minority interests (6) (4)
------------------------------------------------------- --------------- --------
(Loss)/profit for the year (13) 324
------------------------------------------------------- --------------- --------
Basic earnings per share (1) 19.2p 29.4p
Diluted earnings per share (1) 19.2p 27.6p
Dividend per share 8.5p 8.0p
Segmental analysis
for the year ended 31 December
Sales
-------------- ---------- -------
Proforma Published (3)
2000 1999 1999
£m £m £m
Programmes 2,415 2,608 2,599
Customer Solutions & Support 1,820 1,958 1,712
International Partnerships 1,858 1,779 983
Avionics 1,060 1,184 317
North America 1,663 1,436 202
Operations 1,308 1,183 731
Commercial Aerospace 2,868 2,970 2,970
Centre 42 35 16
--------------------------------------------------- -------------- -------------
13,034 13,153 9,530
Less: intra-group (849) (764) (601)
--------------------------------------------------- ------------- --------------
12,185 12,389 8,929
========= ========= =========
for the year ended 31 December
Profit/
(loss)
------------ --------- ---------
Proforma Published (3)
2000 1999 1999
£m £m £m
Programmes 3 390 390
Customer Solutions & Support 434 444 409
International Partnerships 117 71 33
Avionics 107 95 1
North America 165 149 22
Operations (33) - (67)
Commercial Aerospace 149 (10) (10)
Centre 8 (24) (15)
--------------------------------------------------- -------------- -------------
950 1,115 763
Net interest excluding exceptional items (91) (9)
--------------------------------------------------- -------------- -------------
859 754
Goodwill amortisation, including joint (373) (63)
ventures
Exceptional items (note 2) (307) (232)
--------------------------------------------------- -------------- -------------
179 459
================================= ========= ========= =========
(1) excluding goodwill amortisation and/or exceptional items as appropriate.
(2) as restated - see note 8.
(3) restated for new business groups.
Review of operations
Programmes - Performance in the Programmes business group in 2000 was
significantly weighted to the second half, as planned, arising from timing of
Eurofighter Typhoon milestones and deliveries of Hawk aircraft.
As announced in January 2001 the Programmes business group is being
restructured. This follows an unprecedented 63% shortfall in order intake for
routine engineering work on in-service aircraft compared to the average of the
previous three years. This, together with lower than anticipated Hawk export
orders, has resulted in lower capacity requirements.
The Eurofighter production programme is progressing well with first deliveries
on track to meet the planned 2002 delivery schedule. Eurofighter will be a
mainstay of activity for this business group well into the next decade. There
is strong interest in the aircraft from a number of export customers, with the
Greek government having selected Eurofighter to meet its requirements.
The operating result was impacted by a £300m contract loss charge for the
Nimrod programme. The programme has been analysed in depth, and the charge is
expected to cover all the costs of completion of the current contract. Headway
has been made in other aspects of this programme, including agreeing Heads of
Agreement with the UK MoD for the future through-life support of the programme
which has the potential to double the scale of this business and generate good
returns.
Good progress is being made with assembly now started for the first of three,
next generation, Astute class attack submarines under a £1.9bn prime contract.
In December 2000, a £1.2bn prime contract was secured for the design and
construction of the first three, of a potential 12, Type 45 destroyers.
The Hawk programme has seen a record year for deliveries in 2000 with aircraft
deliveries to the Nato flying training programme in Canada and first
deliveries to Australia. In addition, work commenced on a three-year programme
to supply airframe kits to upgrade early Royal Air Force Hawks. Whilst work is
progressing well in securing further Hawk order intake, throughput is set to
reduce from current levels before deliveries to South Africa commence in 2005.
The medium term outlook for Programmes remains good, with growth expected to
return in 2003. Sales for Programmes in 2004 are anticipated to be some 40%
higher than in 2001.
Commercial Aerospace - Our Airbus operations performed strongly in 2000 with a
combination of an improved result from the partnership and improved operating
performance from the UK business primarily engaged in wing manufacture. Better
UK performance resulted from productivity improvements and volume benefits
along with the substantial reduction in launch aid repayments to the UK
Government in respect of the Airbus single aisle programme.
Among the most notable achievements during 2000 was the agreement in June to
restructure Airbus Industrie from its partnership structure operated since its
formation in 1970 to form a new joint integrated Airbus company. This new
joint company, owned by BAE SYSTEMS (20%) and EADS (80%), effectively
commenced trading on 1 January 2001.
Restructuring of Airbus in this way will enable significant savings to be
made. The streamlined organisation heralds a new phase in the evolution of
Airbus, which is entering a stage of strong, profitable, growth.
Airbus continued to strengthen its position in the market during 2000. Orders
for 520 aircraft were received valued at $37bn. The forward order book at the
end of December 2000 amounted to 1,626 aircraft valued at $121bn. In addition
there were a further 50 orders for the new A380, which was formally launched
in December 2000 following a period of technical assessment and customer
consultation, from which strong market support was confirmed.
The Avro regional jet activity sustained its recent record of achieving a
breakeven performance on a low volume of RJ aircraft deliveries. Whilst market
conditions remain difficult, the order book was maintained, closing the year
at 11 aircraft. Orders are being pursued for the new RJX variant, which is
currently being developed.
The asset management activity continued to ensure a high utilisation of the
company's aircraft portfolio and was also successful in the year in generating
additional revenues by selling related services to the aircraft market.
North America - Four acquisitions in 2000 have enhanced the company's position
in the US market. Early in the year, the relatively small acquisitions of
Femtometrics and Watkins Johnson expanded the company's involvement in
chemical agent detection and communications equipment respectively. These
additions were followed in the second half by the acquisition of two former
Lockheed Martin businesses, Control Systems and AES, the latter primarily
comprising the Sanders electronics systems business. Together, these
acquisitions contributed £6m to operating profits, consistent with a
contribution of £77m on a pro forma basis for the full year.
Following these acquisitions, the North American business has a strong
position in information systems, electronic warfare and airborne electronics
including data links and test equipment. With the outlook for anticipated
growth in US defence spend, we are well placed to build on the good
profitability and strong cash flow in this market. Following the addition of
the Lockheed Martin businesses in North America and having complementary
capabilities in the UK-based Avionics business, BAE SYSTEMS is now a world
leader in the supply of digital flight control systems and digital engine
controls and also a leading supplier of electronic warfare solutions in the US
and in Europe.
BAE SYSTEMS North America also has a strong, well-established presence in the
services and support market. It is the largest single technical support
contractor for the US Navy, with a legacy relationship of more than 35 years,
and in 2000 was awarded a $450m contract to provide systems engineering and
technical assistance for the Federal Aviation Administration's air traffic
control programme.
Customer Solutions & Support - This business group is the largest military
services and support provider in the UK and among one of the leading players
world-wide.
The Al Yamamah programme in Saudi Arabia integrates operational support with
services capability to provide a total solutions package to the customer. This
involves some 5,000 people and is expected to continue to contribute
substantially to the performance of the company. Investment is planned to
expand our Saudi relationships and other international prospects in support of
future growth.
In the UK, MoD is well advanced in utilising Private Public Partnerships (PPP)
in defence support, and linked to this a successful early step was the
company's financing of a synthetic training facility for flying instructors at
RAF Valley.
The RAF has now gone out to tender under a similar PPP service provision to
replace its ageing tanker aircraft fleet. BAE SYSTEMS and Boeing are teaming
to support this bid and look to extend the partnership beyond the UK to the
world-wide tanker aircraft market. Additionally, the company is developing a
partnering approach with the UK Defence Logistics Organisation (DLO) to
deliver more cost effective and efficient ways of providing integrated
platform support packages. Key programmes have been identified and jointly
resourced through Integrated Project Teams.
Avionics - In 2000 Avionics made excellent progress with the Eurofighter
Typhoon radar moving from the development stage into production, and the first
system being delivered on schedule in early 2001. The high value-added content
of Avionics-supplied equipment on each Eurofighter Typhoon aircraft will
benefit this business group as aircraft deliveries commence.
Avionics is a major supplier of equipment to other prime contractors. In 2000
the business group delivered the 1,000th primary flight control system for the
Boeing 777. Avionics has substantial equipment selected on several US military
aircraft programmes, including both the Boeing and Lockheed Martin contenders
in the competition to produce the next generation Joint Strike Fighter (JSF).
Important contract awards were also achieved to update GR4 Tornado aircraft
with state-of-the-art technology active matrix liquid crystal displays. The
programme involved a close working relationship with the customer, the DLO,
through an Integrated Project Team. This was identified as one of the best
examples of process within the UK MoD's Smart Procurement initiative.
The performance of this business group is expected to benefit further in 2001
from a recovery of BAE SYSTEMS Australia for which Avionics has
responsibility.
International Partnerships - Good progress has been made in improving
profitability through our international partnerships.
Headway has been made through our 35% interest in Saab AB following its
acquisition of Celsius where the enlarged business is progressing well and
generating the anticipated synergy savings. BAE SYSTEMS is also partnered with
Saab to offer the Gripen combat aircraft in the export market. Following early
success with the aircraft ordered by South Africa, strong interest has emerged
in a number of other markets.
One of the company's larger international partnerships is the Matra BAE
Dynamics (MBD) guided weapons business. MBD has secured a strong forward order
book and has a good growth outlook as future missile programmes move from the
development phase to production.
A key programme is Meteor, which won an important UK selection competition.
Meteor is a beyond visual range air-to-air missile (BVRAAM) which will arm
Eurofighter Typhoon and other combat aircraft in Europe, from later this
decade. It will be the technology leader in a wider market for this class of
weapon.
In conjunction with EADS, the company's space systems activity was enhanced by
the expansion of the former Matra Marconi Space to form Astrium, in which BAE
SYSTEMS now has a 27.5% economic share. Astrium's £2.2bn order book at the end
of 2000, provides a good platform for future growth.
The Thomson Marconi Sonar (TMS) naval sonar systems business, in which BAE
SYSTEMS has a 49.9% interest, is in discussions about a revised programme with
the UK MoD for the challenging 2076 sonar.
Operations - The Operations business is progressing in line with plan, and had
strong cashflow in 2000.
At the end of 1999 RO Defence (formerly Royal Ordnance) secured a long-term
agreement with the UK MoD for the supply of ammunition and explosives. This
agreement, valued at £1bn over a ten-year period, has enabled the business to
plan against a stable workload and, following substantial restructuring, its
performance is recovering.
The aerostructures activity is also progressing well with the award of
multi-year orders for wing sub-assemblies for Airbus and Boeing aircraft.
Migration of workload from regional aircraft activities to the higher
value-added increased volumes of this activity has resulted in an underlying
improvement in the near term outlook.
The shipyard operations have seen a good level of activity over the past year.
In September 2000, the auxiliary oiler Wave Knight was launched and its sister
vessel Wave Ruler followed in February 2001. These ships at 12,500 tonnes are
the largest vessels produced for some years. During the year, the last of the
Type 23 class frigates, HMS St Albans, was launched. In January 2001, the
first of three offshore patrol vessels for Brunei was launched. The Operations
business group loss included a £16m contract loss provision, taken in the
first half results, on landing craft.
In October 2000 Operations was selected for a contract for two ALSL
(Alternative Landing Ship Logistics) vessels for the Royal Navy.
Consolidated profit and loss account
for the year ended 31 December Continuing operations Restated
(1)
---------- ------------
Notes Ongoing Acquisitions Total Total
2000 2000 2000 1999
£m £m £m £m
Sales 12,055 130 12,185 8,929
Less: adjustment for share of (2,539) - (2,539) (1,886)
joint venture sales
------------- --------------- ---------
Turnover 9,516 130 9,646 7,043
Operating costs
Excluding goodwill amortisation (8,722) (117) (8,839) (6,274)
and exceptional items
Goodwill amortisation (323) (7) (330) (43)
Exceptional items 2 (288) - (288) (210)
------------- --------------- ---------
(9,333) (124) (9,457) (6,527)
----------------------------------- ------- ------------- --------------- ------
Operating profit 183 6 189 516
Share of operating profit/(loss)
of joint ventures
Before goodwill amortisation and 143 - 143 (6)
exceptional items
Goodwill amortisation (43) - (43) (20)
Exceptional items 2 (19) - (19) -
------------- --------------- ---------
81 - 81 (26)
----------------------------------- ------- ------------- -------------- -------
Profit before interest
Excluding goodwill amortisation 937 13 950 763
and exceptional items
Goodwill amortisation and (673) (7) (680) (273)
exceptional items
------------- --------------- ---------
264 6 270 490
----------------------------------- ------- ------------- --------------- ------
Interest 8
Net interest arising on activities (105) (9) (114) (33)
excluding exceptional items
Share of net interest of joint 23 - 23 24
ventures
Exceptional finance charges 2 - - - (22)
------------- --------------- ---------
(82) (9) (91) (31)
----------------------------------- ------- ------------- --------------- ------
Profit/(loss) on ordinary
activities before taxation
Excluding goodwill amortisation 855 4 859 754
and exceptional items
Goodwill amortisation and (673) (7) (680) (295)
exceptional items
------------- --------------- ---------
182 (3) 179 459
Tax
Tax on profit excluding (258) (177)
exceptional items
Tax on exceptional items 72 46
--------- -----
(186) (131)
----------------------------------- ------- ------------- --------------- ------
(Loss)/profit on ordinary (7) 328
activities after taxation
Equity minority interests (6) (4)
----------------------------------- ------- ------------- --------------- ------
(Loss)/profit for the financial (13) 324
year
Dividends
Equity: ordinary shares (257) (202)
Non-equity: preference shares (21) (21)
--------- -----
(278) (223)
----------------------------------- ------- ------------- --------------- ------
Retained (loss)/profit (291) 101
======================= ==== ======== ========= ===== ======
Basic earnings per share
Including goodwill amortisation (1.1p) 16.2p
and exceptional items
==== ======== ========= ===== ======
Excluding goodwill amortisation 19.2p 29.4p
and exceptional items
======================= ==== ======== ========= ===== ======
Diluted earnings per share
Including goodwill amortisation (1.1p) 15.6p
and exceptional items
==== ======== ========= ===== ======
Excluding goodwill amortisation 19.2p 27.6p
and exceptional items
======================= ==== ======== ========= ===== ======
(1) see note 8.
Consolidated balance sheet
as at 31 December
2000 1999
Note £m £m
Fixed assets
Intangible assets 1 7,356 6,365
Tangible assets 2,356 2,167
Investments
Share of gross assets of joint ventures 5,676 5,208
Share of gross liabilities of joint ventures (4,988) (4,573)
------------- ---------
Share of joint ventures 688 635
Others 40 25
------------- ---------
728 660
----------------------------------------------------------- --------- ----------
10,440 9,192
----------------------------------------------------------- --------- ----------
Current assets
Stocks 1,536 1,559
Debtors due within one year 2,210 3,647
Debtors due after one year 573 512
Investments 1,159 1,713
Cash at bank and in hand 1,475 811
----------------------------------------------------------- --------- ----------
6,953 8,242
Liabilities falling due within one year
Loans and overdrafts (2,397) (2,025)
Creditors (4,743) (4,871)
----------------------------------------------------------- --------- ----------
(7,140) (6,896)
Net current (liabilities)/assets (187) 1,346
----------------------------------------------------------- --------- ----------
Total assets less current liabilities 10,253 10,538
----------------------------------------------------------- --------- ----------
Liabilities falling due after one year
Loans (1,063) (1,155)
Creditors (619) (542)
------------- ---------
(1,682) (1,697)
Provisions for liabilities and charges - (1,319) (1,396)
----------------------------------------------------------- -------- -----------
7,252 7,445
----------------------------------------------------------- --------- ----------
Capital and reserves
Called up share capital 143 140
Shares to be issued - 255
Share premium account 341 212
Statutory reserve 202 202
Other reserves 5,440 5,212
Profit and loss account 1,026 1,339
----------------------------------------------------------- --------- ----------
Shareholders' funds
Equity: ordinary shares 6,886 7,091
Non-equity: preference shares 266 269
7,152 7,360
Equity minority interests 100 85
----------------------------------------------------------- --------- ----------
7,252 7,445
----------------------------------------------------------- --------- ----------
Consolidated cash flow
for the year ended 31 December 2000 1999
Notes £m £m
Net cash inflow from operating activities
Operating profit 189 516
Tangible fixed assets depreciation and impairment 309 211
Goodwill amortisation 330 43
Profit on disposal of fixed assets (29) (4)
Movement in provisions for liabilities and charges (215) (116)
excluding deferred tax
Decrease/(increase) in working capital:
Stocks 47 100
Debtors 1,620 122
Creditors (580) (409)
Customer stage payments 223 (44)
------------------------------------------------------------ -------- ----------
1,894 419
======================================== ===== ======== =======
Cash flow statement
Net cash inflow from operating activities 1,894 419
Dividends from joint ventures 18 30
Returns on investments and servicing of finance (97) (62)
Taxation (59) (81)
Capital expenditure and financial investment (283) (132)
Acquisitions and disposals
Acquisitions - Lockheed Martin businesses (1,560) -
Acquisitions - MES - (1,357)
Acquisitions - other (45) (18)
Disposal of subsidiary undertakings and joint 115 42
ventures
Equity dividends paid (202) (100)
------------------------------------------------------------ -------- ----------
Net cash outflow before financing and management of (219) (1,259)
liquid resources
Management of liquid resources 497 234
Financing (123) 1,686
------------------------------------------------------------ -------- ----------
Net increase in cash available on demand 155 661
------------------------------------------------------------ -------- ----------
Reconciliation of net cash flow to net movement in
net funds
Net increase in cash available on demand 155 661
Net decrease in liquid resources (497) (234)
Decrease/(increase) in other loans included within 194 (957)
net funds
------------------------------------------------------------ -------- ----------
Change in net funds from cash flows (148) (530)
Investments, loans and finance leases assumed on - (435)
acquisition of MES
Other non cash movements 48 27
------------------------------------------------------------ -------- ----------
Net decrease in net funds (100) (938)
Net (debt)/funds at 1 January (726) 212
------------------------------------------------------------ -------- ----------
Net funds at 31 December (826) (726)
======================================== ==== ======== ======
Reconciliation to movement in net debt as defined
by the group
Net decrease in net funds (100) (938)
Decrease/(increase) in cash on customers' account 26 (83)
------------------------------------------------------------ -------- ----------
Net movement for the year 6 (74) (1,021)
======================================== ===== ======== =======
Statement of total recognised gains and losses
2000 1999
£m £m
(Loss)/profit for the financial year
Group, excluding joint ventures (91) 339
Joint ventures 78 (15)
------------------------------------------------------------ -------- ----------
Total (loss)/profit for the financial year (13) 324
Currency translation on foreign currency net (20) (9)
investments, including joint ventures
Revaluation of current asset investment - 563
Impairment of land and buildings (14) (10)
Other recognised gains and losses relating to the year (34) 544
(net)
------------------------------------------------------------ -------- ----------
Total recognised gains and losses relating to the year (47) 868
======================================== ==== ======== =======
Reconciliation of movements in shareholders' funds
2000 1999
£m £m
(Loss)/profit for the financial year (13) 324
Dividends (278) (223)
------------------------------------------------------------ -------- ----------
(291) 101
Other recognised gains and losses relating to the year (34) 544
(net)
New share capital subscribed - 29
Merger reserve arising on the issuance of shares - 4,336
relating to the MES acquisition
Shares to be issued in relation to the MES acquisition - 255
Issuance of shares to the QUEST 17 7
Exercise of share options, warrants and dividend scrip 100 68
issue
------------------------------------------------------------ -------- ----------
Net (decrease)/increase in shareholders' funds (208) 5,340
Opening shareholders' funds 7,360 2,020
------------------------------------------------------------ -------- ----------
Closing shareholders' funds 7,152 7,360
======================================== ==== ======= ======
Notes to the preliminary results
1 Acquisitions and disposals
The group acquired two former Lockheed Martin businesses during 2000, the
Control Systems business in September for a cash purchase consideration of
$510m (£346m) and the AES business in November for a cash purchase
consideration of $1.67bn (£1.18bn). In addition to the purchase price other
costs associated with these two acquisitions totalled $105m (£73m). After
provisional fair value adjustments (£98m) together with accounting policy
realignments (£101m), goodwill arising on consolidation of these two
acquisitions amounted to £1,327m, and is being amortised over its expected
useful life of 20 years.
In addition to these two acquisitions, other minor acquisitions in the period
were made, with total cash consideration of £45m, and goodwill arising on
consolidation of £65m.
Fair value adjustments in respect of the 1999 MES acquisition totalling £24m
(net of tax) have been made, in consequence increasing goodwill arising on
that transaction by the same amount.
During the year the group disposed of Actuation Systems Inc. and its Avionics
Power and Controls business for a total consideration of £115m.
2 Exceptional items
Year to 31 Year to 31
December December
2000 1999
£m £m
Exceptional loss included within profit before
interest
2000 rationalisation programme (109) -
1999 defence sector rationalisation (47) (198)
BAe/MES integration costs (151) (12)
------------- -------------
(307) (210)
======== ========
Exceptional finance charges
Finance charges relating to the MES acquisition - (22)
======== ========
Net exceptional loss included within profit before (307) (232)
tax
======== ========
2000 rationalisation programme
As a result of capacity excesses across a number of business groups a
rationalisation programme has been initiated.
The total cost of this rationalisation is estimated at £225m before a tax
credit of £52m, of which £109m (including joint venture charges of £19m)
before a tax credit of £23m (joint ventures £nil) has been charged at 31
December 2000. The balance is expected to be charged in 2001. The associated
net cash outflow in 2000 amounted to £33m.
1999 defence sector rationalisation
On 24 June 1999 the group announced a rationalisation of defence sector
activities including redundancy programmes across a number of business units.
The total cost of this rationalisation was estimated at £250m before a tax
credit of £60m, of which £198m before a tax credit of £43m was charged at 31
December 1999. The profit and loss impact of this rationalisation has been
finalised in 2000 with £47m charged before a tax credit of £12m.
There was an associated net cash outflow of £84m, related to this
rationalisation programme.
BAe/MES integration costs
Following the merger of BAe and MES on 29 November 1999 the group has embarked
on a process of integrating this business within the enlarged organisation.
Costs in 2000 associated with this process amounted to £151m before a tax
credit of £37m. A net cash outflow of £125m arose in 2000 in respect of these
costs.
Further integration costs are expected to be incurred in the next two
financial years.
3 Commercial aircraft financing
Commercial aircraft are frequently sold for cash with the manufacturer
retaining some financial exposure. Aircraft financing commitments of the group
can be categorised as either direct or indirect. Direct commitments arise
where the group has sold the aircraft to a third party lessor and then leased
it back under an operating lease (or occasionally a finance lease) prior to an
onward lease to an operator. Indirect commitments (contingent liabilities) may
arise where the group has sold aircraft to third parties who either operate
the aircraft themselves or lease the aircraft on to operators. In these cases
the group may give guarantees in respect of the residual values of the related
aircraft or certain head lease and finance payments to be made by either the
third parties or the operators. The group's exposure to these commitments is
offset by insurance arrangements, future lease rentals and the residual value
of the related aircraft.
The net exposure of the group to aircraft financing as at 31 December was:
2000 1999
£m £m
Direct operating lease commitments 600 722
Direct finance lease commitments 4 5
Indirect exposure through aircraft contingent 1,414 1,589
liabilities
Exposure to residual value guarantees 693 542
Income guaranteed through insurance arrangements (1,727) (1,885)
--------------- ----------
Net exposure 984 973
Expected income not covered by insurance arrangements (43) (43)
Expected income on aircraft delivered post insurance (388) (330)
arrangements
Adjustment to net present value (154) (158)
--------------- ----------
Recourse provision 399 442
========== ==========
Saab AB
The group is involved in similar arrangements through its shareholding in Saab
AB including aircraft financing commitments and contingent liabilities arising
from guarantees in connection with aircraft sales.
Where Saab AB is exposed to financial risk from the above arrangements, it
makes provision 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 35%
shareholding in Saab AB. Further, in November 2000, Saab entered into a
Financial Risk Insurance Programme similar in nature to that implemented by
BAE SYSTEMS. This programme covers the majority of the Saab aircraft portfolio
and in consequence significantly reduces the risk of potential future
liabilities in that company.
Airbus
At 31 December 2000 the group was involved in similar arrangements through its
participation in Airbus Industrie GIE (AI) including aircraft financing
commitments and contingent liabilities arising from credit guarantees and
financing receivables under customer financing programmes.
Where AI is exposed to financial risk from the above arrangements, it makes
provision against the expected net exposure, after taking into account future
sub-lease rentals and residual values of related aircraft where appropriate.
Provision for the net exposure is included within the group's share of the
results of AI. As at 31 December 2000 the group's obligation under the
financing arrangements of AI were joint and several with its partner EADS.
4 Dividends
The directors propose a final dividend of 5.2p per ordinary share which, with
the interim dividend, makes a total dividend of 8.5p per ordinary share for
the year (1999 8.0p). The dividend will be paid on 1 June 2001 to shareholders
registered on 20 April 2001. The ex-dividend date will be 18 April 2001.
5 Authority to purchase the company's shares
A resolution will be put to shareholders at this year's Annual General 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.
6 Net debt
The company's net debt position comprises:
2000 1999
£m £m
Current assets
Current asset investments 1,159 1,643
Cash at bank and in hand 1,475 811
Current liabilities
Loans and overdrafts (2,397) (2,025)
Liabilities falling due after one year
Loans (1,063) (1,155)
------------- -------------
Net funds (826) (726)
Cash on customers' account (73) (99)
------------- -------------
Net debt (899) (825)
======== ========
7 New Financial Reporting Standards
Financial Reporting Standard 15 - Tangible Fixed Assets and Financial
Reporting Standard 18 - Accounting Policies have been adopted for the first
time in the 2000 accounts. As permitted by FRS 15 the company's policy in
respect of the revaluation of tangible fixed assets is to continue to carry
those assets which have been subject to prior period revaluations at their
depreciated revalued amounts, but not to undertake any revaluation of tangible
fixed assets in this or future reporting periods. Financial Reporting Standard
17 - Retirement Benefits and Financial Reporting Standard 19 - Deferred Tax
were both issued by the Accounting Standards Board close to the end of 2000,
and will be addressed in the preparation of the 2001 accounts.
8 Restatement of results
The directors have reconsidered the accounting treatment in respect of the
interest adjustment on certain net present value recourse provisions. In prior
years the element of the adjustment relating to exceptional provisions had
been treated as an exceptional charge within interest. This charge is now
included within the normal interest payable for the group.
1999 figures have been restated in consequence. There is no net impact on
profit reported for the year or on net assets. The adjustment for 2000
amounting to £32m, is included within the net interest charge of £114m. The
1999 adjustment amounted to £36m and is now included within the net interest
charge of £33m for that year. The associated tax credit of £10m (1999 £11m)
and the earnings per share figure excluding goodwill amortisation and
exceptional items have been restated for this change of presentation.
The effect of the change is to reduce profit before tax excluding goodwill
amortisation and exceptional items by £32m (1999 £36m).
9 Post balance sheet events
Airbus
An integrated joint Airbus company was formed with effect from 1 January 2001
comprising the previously held 100% operations of the Airbus Industrie GIE
partners, BAE SYSTEMS and EADS, together with Airbus Industrie GIE itself. BAE
SYSTEMS will hold a 20% interest in the new company with EADS holding the
balance.
Business divestments
In February 2001 agreement was reached for the sale of the company's 54% owned
subsidiary BAE SYSTEMS Canada Inc. to ONCAP, an investment fund located in
Toronto, Canada. The transaction, which is subject to both Canadian and US
regulatory approvals, is expected to complete in the first half of 2001.
In February 2001 the company reached agreement to sell its Flight Simulation
and Training business based in Tampa, Florida, to CAE, Toronto, Canada.
Completion of this transaction is expected in the first half of 2001, subject
to regulatory approval in the US.
10 Other information
The financial information for the years ended 31 December 2000 and 31 December
1999 contained in these preliminary results, which were approved by the Board
on 28 February 2001, 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 1999 have been delivered to
the Registrar of Companies. Statutory accounts for the year ended 31 December
2000 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.
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