2002 interim results 12 september 2002 - investis...
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2002 Interim Results
12 September 2002
Mike Turner
Chief Executive
Key points
•• Defence market developing in line with our strategyDefence market developing in line with our strategy
•• C4ISR and Network Centric WarfareC4ISR and Network Centric Warfare
•• New SDR chapterNew SDR chapter
•• Unique UK BAE SYSTEMS capabilities, resources and technologyUnique UK BAE SYSTEMS capabilities, resources and technology
•• Legacy Legacy vsvs new generation shipbuildingnew generation shipbuilding
•• UK MoD / BAE SYSTEMS partnershipUK MoD / BAE SYSTEMS partnership
•• Regional Aircraft closureRegional Aircraft closure
•• Airbus robust performanceAirbus robust performance
Business Unit Highlights
•• Air Systems recoveryAir Systems recovery
•• Sea Systems new generationSea Systems new generation
•• CS & S growthCS & S growth
•• North America strong performanceNorth America strong performance
•• Foreign ownership limitation addressedForeign ownership limitation addressed–– 49.5% limit abolished49.5% limit abolished–– 15% limit on single foreign shareholding remains15% limit on single foreign shareholding remains
•• Board nationality restrictions relaxedBoard nationality restrictions relaxed–– Mark Ronald appointed to BoardMark Ronald appointed to Board
•• Management executive responsibilities revisedManagement executive responsibilities revised–– Chris Chris Geoghegan Geoghegan appointed to Boardappointed to Board
Management Structure
Mark RonaldCOO
President and CEO
BAE SYSTEMS BAE SYSTEMS North AmericaNorth America
Chris GeogheganCOO
Steve MogfordCOO
Sir Richard EvansChairmanSir Charles Masefield
Vice Chairman Michael LesterLegal Director
Mike TurnerChief Executive
Mike RouseGrp Marketing Director
George RoseFinance Director
InternlInternl partnershipspartnershipsAvionics, RODAvionics, RODAerostructures, ASGAerostructures, ASGShared Services Shared Services Capital, CVF Capital, CVF
ProgrammesProgrammes-- Air SystemsAir Systems-- Sea SystemsSea Systems-- C4ISRC4ISR
AirbusAirbus
Tony McCarthyHR Director
Ian KingGroup MD
Customer Solutions Customer Solutions & Support& Support
UK Procurement Debate
•• Competition not at issueCompetition not at issue
•• Dialogue with UK customer seeks:Dialogue with UK customer seeks:--–– partnershippartnership–– better balance of risk versus rewardbetter balance of risk versus reward
Portfolio
•• Disposals announcedDisposals announced–– Flight Data SystemsFlight Data Systems–– Chaff and Flares businessChaff and Flares business–– AstriumAstrium
•• TRW TRW –– Good strategic fitGood strategic fit–– Insulation from Auto exposure a negative discriminatorInsulation from Auto exposure a negative discriminator–– Positive UK and US Government dialoguePositive UK and US Government dialogue
–– Disposal opportunitiesDisposal opportunities–– Heckler & KochHeckler & Koch–– Gaithersburg operationsGaithersburg operations–– Rocket motorsRocket motors–– ROVISROVIS
George Rose
Group Finance Director
Financial Highlights
•Profit before interest* £461m
•Fully diluted earnings per share* 7.7p
•Dividend per share 3.7p
•Operating cash flow £(314)m
•Net debt £1,551m
•Order book £42.9bn
•Profit before interest* £461m
•Fully diluted earnings per share* 7.7p
•Dividend per share 3.7p
•Operating cash flow £(314)m
•Net debt £1,551m
•Order book £42.9bn
* before goodwill amortisation and exceptional items
Profit and Loss Account
5,703
461
(102)
359
(39)
Sales (including share of JV sales)
Profit before interest *
Interest
Profit before tax*
Exceptional items
£ millions
First half2002
6,292
551
(69)
482
(65)
First half2001
* before goodwill amortisation and exceptional items
Balance Sheet
9,825
(1,015)
(1,551)
(1,048)
6,211
(21)
6,190
10,142
(1,372)
(831)
(1,281)
6,658
(20)
6,638
30/6/0231/12/01
Fixed assets
Working capital
Net cash
Provisions
Net assets
Minority interest
Shareholder funds
£ millions
Operating Cash Flow
Profit before interest*less exceptional items
Net capital expenditure
Depreciation
Movements in provisions
Customer stage payments
Movements in other working capital
Other items (incl. J/V profits/dividend)
Operating cash flow
First half2002
461(39)
(83)
104
(264)
93
(568)
(18)
(314)
£ millions* before goodwill amortisation and exceptional items
Non-operating Cash FlowFirst half
2002
-
-
(49)
(188)
29
(248)
50
(406)
Acquisitions
Disposals
Net interest
Tax and dividends
Net proceeds from equity issues
Exchangeable Bond
Other items
Non operating cash flow
£ millions
Vodafone Exchangeable
•• £686m 3.75% exchangeable Bonds due 2006£686m 3.75% exchangeable Bonds due 2006
•• Value of shares below Bond value for the first timeValue of shares below Bond value for the first time–– Exchange Property to be valued at market whilst below value of BExchange Property to be valued at market whilst below value of Bondond
•• No P&L affect No P&L affect -- changes pass to original revaluation reservechanges pass to original revaluation reserve
•• Settlement on Bond maturity:Settlement on Bond maturity:–– share price > 142p share price > 142p -- shares exchanged for bond shares exchanged for bond –– share price < 142p share price < 142p -- bond settled with cash, shares retainedbond settled with cash, shares retained
•• Enforced conversion between now and 21/7/06 providedEnforced conversion between now and 21/7/06 provided VodafoneVodafone price price above 162p on 20 of 30 consecutive daysabove 162p on 20 of 30 consecutive days
Sales by Sector
Programmes16%
CustomerSolutions &
Support18%
Commercial Aerospace
24%
North America
23%
Avionics8%
International partnerships
11%
First half 2002 sales £5.7bnFirst half 2002 sales £5.7bn
•• Reporting simplified to six sectorsReporting simplified to six sectors
•• Operations Group disbandedOperations Group disbanded
–– aerostructures a commercial aircraft supplieraerostructures a commercial aircraft supplier
–– navalnaval PCO’sPCO’s now aligned with shipyardsnow aligned with shipyards
–– reduces intrareduces intra--group trading linegroup trading line
Excludes HO and other businesses Before intra group eliminations
Programmes
First half First half First half First half First half First half First halfFirst half2001 2002 20012001 2002 2001 20022002
reported old basis restated new basisSales £1,049m £782m £1,374m £955mPBIT £34m £57m £53m £3mMargin 3.2% 7.3% 3.9% 0.3%Order book £10.0bn £10.5bn £11.1bn £11.7bnCash flow £(3)m £(169)m £80m £(222)m
•• Restated to includeRestated to include
–– Marine, Export ships Marine, Export ships
–– Underwater weaponsUnderwater weapons
•• Mix changeMix change
–– AY construction completedAY construction completed
–– new programmes moving to productionnew programmes moving to production
•• On track for recovery to growth in 2003On track for recovery to growth in 2003
Programmes - Air Systems
•• Sustaining Engineering on planSustaining Engineering on plan
•• Nimrod Nimrod
–– three aircraft in final assemblythree aircraft in final assembly
–– on track to first flighton track to first flight•• Hawk Hawk
–– MFTS opportunity progressingMFTS opportunity progressing
–– selected in Bahrainselected in Bahrain•• TyphoonTyphoon
–– IPA first flightsIPA first flights
–– high systems maturityhigh systems maturity
Programmes - Sea Systems
•• AO and LPD commissioning cost overrunsAO and LPD commissioning cost overruns
•• Astute Astute
–– design release slippagedesign release slippage
–– ‘cost to complete’ held‘cost to complete’ held
•• Type 45 design on programmeType 45 design on programme
First half First half First half First half First half First half First halfFirst half2001 2002 20012001 2002 2001 20022002
reported old basis restated new basisSales £1,049m £782m £1,374m £955mPBIT £34m £57m £53m £3mMargin 3.2% 7.3% 3.9% 0.3%Order book £10.0bn £10.5bn £11.1bn £11.7bnCash flow £(3)m £(169)m £80m £(222)m
Customer Solutions & Support
First half First half First half First half 2001 20022001 2002
Sales £1,023m £1,065mPBIT £190m £220mMargin 18.6% 20.7%Order book £2.2bn £2.2bnCash flow £127m £85m
•• Accessing good growth in UK service provisionAccessing good growth in UK service provision
•• AY Support services stableAY Support services stable
Accessing Support Growth Opportunities
•• UK support wins UK support wins
•• ‘Tiger Teams’‘Tiger Teams’–– Military aircraft structures Military aircraft structures -- Tornado, HarrierTornado, Harrier–– Avionics supportAvionics support–– F3 Foxhunter radar support F3 Foxhunter radar support
•• Nimrod MR2 / MRA4Nimrod MR2 / MRA4•• Typhoon Typhoon
–– ‘Case white’‘Case white’–– Follow on training and support Follow on training and support
•• Naval support Naval support -- Portsmouth DockyardPortsmouth Dockyard
• £350m FSL partnering agreement over 5 years
• Extension potential to £800m over 11 years
International Partnerships
First half First half 2001 2002
Sales £799m £658mPBIT £51m £2mMargin 6.4% 0.3%Order book £6.0bn £5.9bnCash flow £(86)m £39m
•• Partial recovery anticipated from stronger MBDA 2nd half resultsPartial recovery anticipated from stronger MBDA 2nd half results
•• AstriumAstrium losses to be addressed through disposallosses to be addressed through disposal–– shareholder restructuring agreedshareholder restructuring agreed– €165m sale of interest in 165m sale of interest in Astrium Astrium to EADSto EADS–– Paradigm JV formed forParadigm JV formed for SkynetSkynet V service provisionV service provision–– completion anticipated by year endcompletion anticipated by year end
International Partnerships
MBDA (37.5%)
Astrium (27.5%)
STN Atlas (49%)
•• AstriumAstrium sale agreedsale agreed
•• MBDA restructuredMBDA restructured–– performance driven by new programmes in 2003performance driven by new programmes in 2003–– strong order bookstrong order book–– Meteor launch awaiting German signMeteor launch awaiting German sign--offoff
•• Saab performing well Saab performing well
•• AMS restructuredAMS restructured
•• STN STN –– restructuring under discussionrestructuring under discussion
Saab (35%)
AMS (50%)
Avionics
First half First half 2001 2002
Sales £433m £459mPBIT £37m £4m
Margin 8.5% 0.9%
Order book £2.7bn £2.7bn
Cash flow £(20)m £5m•• First half impacted by TS 503 and First half impacted by TS 503 and Longbow delivery issuesLongbow delivery issues
•• Second half performance driven by Second half performance driven by Typhoon Radar and DASS deliveriesTyphoon Radar and DASS deliveries
Typhoon Avionics
•• Strong growth outlook driven by Typhoon subStrong growth outlook driven by Typhoon sub--systemssystems–– Captor radarCaptor radar–– DASS / EW systemDASS / EW system–– integrated helmetintegrated helmet–– HUD / displaysHUD / displays–– inceptorinceptor
North America
First half First half 2001 2002
Sales £1,264m £1,327mPBIT £112m £115m
Margin 8.9% 8.7%
Order book £2.7bn £2.4bn
Cash flow £137m £84m
•• Good growth Good growth –– sales up 10% adjusted for disposed activitysales up 10% adjusted for disposed activity
•• Good Controls business performance despite Good Controls business performance despite effect of commercial market downturn effect of commercial market downturn
•• Well positioned for future growthWell positioned for future growth
• Contract award 24/6/02
Prime JTR System Contractor
Deputy JTR System Contractor
JTR Set DevelopmentJTR Set Development
JTRS Cluster1 Phase
Period ofPerformance
(CY)Quantity
EstimatedValue toTeam
EstimatedValue to
BAESYSTEMS
SD&D 2002-2006 � 300 > $400M � $100M
LRIP 2004-2008 5,000 – 10,000 � $1B � $400M
Production 2007-2019 > 100,000 � $8B � $4B
Cluster 1 JTRS will provide 17 software defined waveforms
Commercial Aerospace
•• Restated to include Restated to include AerostructuresAerostructures businessbusiness
•• Airbus performing wellAirbus performing well First half First half First half First half 2001 2002 2001 2002
reported old basis restated new basis
Sales £1,509m £1,360m £1,555m £1,389mPBIT £117m £124m £110m £122m
Margin 7.8% 9.1% 7.1% 8.8%
Order book £21.4bn £19.1bn £22.0bn £19.3bn
Cash flow £(89)m £(153)m £(106)m £(138)m
Airbus
•• Airbus managing difficult market wellAirbus managing difficult market well–– major benefits from single companymajor benefits from single company
•• Production programme stabilisedProduction programme stabilised–– circa 300 a/c deliveries in 2002 circa 300 a/c deliveries in 2002 –– expected to be maintained in 2003expected to be maintained in 2003
•• A340A340--600 entry into service achieved on plan600 entry into service achieved on plan
•• A380 development continues on trackA380 development continues on track
0
100
200
300
400
1996 1997 1998 1999 2000 2001 2002 2003
aircraft
est est
AirbusDeliveries
AirbusAirbusDeliveriesDeliveries
WideWide--bodybody
SingleSingle--aisleaisle
Financial Summary
Profit before interest * £461m
Margin 8.1%
Net debt £1,551m
Operating cash flow £(314)m
Fully diluted earnings per share* 7.7p
Dividend per share 3.7p
Order book £42.9bn
Profit before interest * £461m
Margin 8.1%
Net debt £1,551m
Operating cash flow £(314)m
Fully diluted earnings per share* 7.7p
Dividend per share 3.7p
Order book Order book £42.9bn£42.9bn
* before goodwill amortisation and exceptional items
Mike Turner
Summary and Q&A
Summary
•• Air systems programmesAir systems programmes
•• Sea systems programmesSea systems programmes
•• Joint Venture performance Joint Venture performance
•• North AmericaNorth America
•• CS&S CS&S
•• Airbus Airbus
•• Recovery on planRecovery on plan
•• Legacy issuesLegacy issues
•• Astrium sale agreed Astrium sale agreed
•• Performing stronglyPerforming strongly
•• Delivering growth Delivering growth
•• 2003 volume confirmed 2003 volume confirmed
Handouts
Profit and loss account
First half2001
482
(246)(65)
171
(154)12(6)
23
10.2p
First half2002
359
(279)(39)
41
(115)11-
(63)
7.7p
Profit before tax*
Goodwill amortisationExceptional items
Profit before tax
Tax - ordinary itemsTax - exceptional itemsMinority interests
Profit / (Loss) for the year
Diluted earnings per share*
£ millions* before goodwill amortisation and exceptional items
Exceptional items
First half 2001
(44)
(21)
-
(65)
First half 2002
(8)
(1)
(30)
(39)
Defence sector rationalisation
MES integration costs
Commercial aerospace
Total exceptional items
£ millions
Cash movement reconciliation
Per Per Net Net ManagementManagementFRS 1FRS 1 CapexCapex
JV JV dividenddividend
CoCACoCA**Cash FlowCash Flow
Net funds at 31/12/2001 (30) (831)
Operating cash flow (83) 10 9 (314)
Non-operating cash flow 71 (10) (406)
Net funds at 30/6/2002
(801)
(262)
(467)
(1,530) (21) (1,551)(12)
ProfitProfiton FA on FA
disposaldisposal
12
12
* Cash on Customer’ Account
First Half
Basic EPS calculationProfit for the period incl. goodwill amortisation and exceptional items
Preference dividends
Earnings including goodwill amortisation and exceptional items
Addback Goodwill amortisation
Exceptional items
Tax on exceptional items
Earnings for the period excl. goodwill amortisation and exceptional items
Weighted average Ordinary Shares in issue (millions)
Basic earnings per share :
Including goodwill amortisation and exceptional items
Excluding goodwill amortisation and exceptional items
2002(63)
(10)
(73)
279
39
(11)
234
3,048
(2.4)p
7.7p
200123
(10)
13
246
65
(12)
312
3,040
0.4p
10.3p
Diluted EPS calculationProfit for the period incl. goodwill amortisation and exceptional items
Preference dividends
Earnings including goodwill amortisation and exceptional items
Addback Goodwill amortisation
Exceptional items
Tax on exceptional items
Earnings excluding goodwill amortisation and exceptional items
Weighted average Ordinary Shares in issue (millions)
Weighted average incl. Options and Preference shares (millions)
Diluted earnings per share :
Including goodwill amortisation and exceptional items
Excluding goodwill amortisation and exceptional items
2002(63)
(10)
(73)
279
39
(11)
234
3,048
n/a
(2.4)p
7.7p
200123
(10)
13
246
65
(12)
312
3,040
3,052
0.4p
10.2p
First Half
Performance by Sector2002 First half
Revised structure 2001 structureSales
£mPBIT£m
Sales£m
PBIT£m
955
1,065
658
459
1,327
-
1,389
159
(309)
5,703
Programmes
Customer Solutions and Support
International Partnerships
Avionics
North America
Operations
Commercial Aircraft
HQ and other businesses
Intra group
Total
3
220
2
4
115
-
122
(5)
-
461
782
1,065
658
459
1,327
443
1,360
12
(403)
5,703
57
220
2
4
115
(44)
124
(17)
-
461