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2003 Interim Results 11 September 2003

2003 Interim Results 11 September 2003. Mike Turner Chief Executive. Business Performance. Military Platforms. Electronics & Software. 20%. 30%. Strong North America performance CS&S delivering growth strategy Airbus performing well UK MoD programmes being addressed.

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2003 Interim Results 11 September 2003

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  1. 2003 Interim Results11 September 2003

  2. Mike Turner Chief Executive

  3. Business Performance Military Platforms Electronics & Software 20% 30% • Strong North America performance • CS&S delivering growth strategy • Airbus performing well • UK MoD programmes being addressed Commercial Platforms Support Solutions 21% 29%

  4. Highlights - UK • Iraq • Equipment performance endorsement • CS&S • Continued good progress with DLO • Expanding in new markets • Programmes • Nimrod and Astute on track • Thales agreement on the Carrier • Type 45 progressing well • Sting Ray mod 1 contract award • Typhoon Type Acceptance achieved • JSF development progressing to plan • Hawk agreements for UK and India

  5. Network Enabled Capability • NITEworks • Optimise UK’s Network Enabled Capabilities • UK MoD / Industry partnership • BAE SYSTEMS lead • Key to integration of future systems • UK Missile Defence Centre • Forum for missile defence collaboration • Interface with US Missile Defence Agency • UK MoD / Industry partnership • BAE SYSTEMS lead

  6. Highlights - US • AJCN • Adaptive Joint C4ISR Node (AJCN) • DARPA advanced technology demonstration programme • WIN -T • Warfighter Information Network - Tactical • GPCS / APCS • Selected for key C4ISR position on FCS • C-17 • Avionics upgrade • Acquisitions • MEVATEC and APTI

  7. Highlights - Europe • Airbus • Good order intake • Stable delivery outlook • A400M • 180 aircraft contract signed • EuroSystems • Memorandum of Understanding signed • STN Atlas • Restructuring agreed

  8. Programme Management • Programme management • External benchmarking • Management team changes • New programme management assessment centre • Incentives revised

  9. Optimise the value of our business portfolio through being a leader in our chosen markets Achieve transaction(s) to secure a prime systems solutions position in the US Grow leading sub systems position in North America Consolidate Defence Electronics position in Europe Build an integrated support, solutions and services business in UK and international markets Develop a sustainable UK programme prime position in Air, Sea and Land Become the UK’s system of systems architect Manage “non-strategic” business for optimal value Group Strategy Framework To be the premier transatlantic defence company and a lead supplier of prime systems solutions Integrated Business Plans

  10. George Rose Group Finance Director

  11. Financial Highlights • Profit before interest* £465m • Fully diluted earnings per share* 7.2p • Dividend per share 3.7p • Operating cash flow £273m • Net debt £1,254m • Order book £46.4bn * before goodwill amortisation, impairment and exceptional items

  12. Profit and Loss Account First half 2003 First half 2002 Sales (including share of JV sales) Profit before interest * Interest Profit before tax* Exceptional items 5,682 465 (132) 333 (3) 5,703 461 (102) 359 (39) * before goodwill amortisation, impairment and exceptional items £ millions

  13. Balance Sheet 31/12/02 30/6/03 Fixed assets Working capital Net cash / (debt) Provisions Net assets Minority interest Shareholders’ funds 9,480 (1,606) (1,254) (1,018) 5,602 (20) 5,582 9,652 (1,671) (1,298) (987) 5,696 (20) 5,676 5,703 461 (102) 359 (39) £ millions

  14. FRS 17 - Pensions Deficit in pension schemes at 1 January 2003 Actual return on assets in excess of expected return Increase in liabilities Other movements Deficit in pension schemes at 30 June 2003 Related deferred tax asset Net pension liability (3,125) 188 (683) (12) (3,632) 1,122 (2,510) £ millions

  15. Operating Cash Flow First half 2003 Profit before interest* Less J/Vs Less exceptional items Add depreciation Profit on disposal of fixed assets Mvt in liability provisions Mvt in stocks Mvt in debtors Mvt in creditors Mvt in customer stage payments Operating cash flow (FRS 1) 465 (103) (3) 106 (17) (62) (101) 300 (534) 222 273 (3,125) 188 (683) (12) (3,632) 1,122 (2,510) £ millions * before goodwill amortisation, impairment and exceptional items £ millions

  16. Sector Cash Flow First half 2003 273 (63) 7 217 (35) 302 41 (51) 143 (154) (29) 217 Operating cash flow (FRS 1) Capital Expenditure (net) & Financial Investment J/V Dividend Sector cash flow ProgrammesCustomer Solutions & Support International Partnerships Avionics North America Commercial Aerospace HQ and other businesses Sector cash flow £ millions

  17. Free Cash Flow First half 2003 Operating cash flow Capital Expenditure (net) & Financial Investment Dividend received from J/Vs Interest and Preference Dividend Taxation Free cash flow 273 (63) 7 (66) 70 221 £ millions

  18. Movement in Net Debt First half 2003 Opening Net Debt Free cash flow Dividends paid Acquisitions and Disposals Exchange property Foreign currency translation Proceeds of equity issues Movement in cash on customers’ account Closing Net Debt (1,298) 221 (168) (62) 25 19 - 9 (1,254) £ millions

  19. Programmes First half 2003 £976m £18m 1.8% £11.7bn £(35)m First half 2002 £955m £3m 0.3% £11.7bn £(222)m Sales PBIT Margin Order book Cash flow

  20. Customer Solutions & Support First half 2003 £1,018m £210m 20.6% £2.1bn £302m First half 2002 £1,065m £220m 20.7% £2.2bn £85m Sales PBIT Margin Order book Cash flow

  21. International Partnerships MBDA (37.5%) First half 2003 £650m £8m 1.2% £6.1bn £41m First half 2002 £658m £2m 0.3% £5.9bn £39m Saab (35%) Sales PBIT Margin Order book Cash flow AMS (50%) Atlas Elektronik (100%)

  22. Avionics First half 2003 £488m £4m 0.8% £2.5bn £(51)m First half 2002 £459m £4m 0.9% £2.7bn £5m Sales PBIT Margin Order book Cash flow

  23. North America First half 2003 £1,365m £122m 8.9% £2.5bn £143m First half 2002 £1,327m £115m 8.7% £2.4bn £84m Sales PBIT Margin Order book Cash flow

  24. North America First half 2003 $2,202m $197m 8.9% $4.1bn $230m First half 2002 $1,917m $166m 8.7% $3.7bn $121m Sales PBIT Margin Order book Cash flow

  25. Commercial Aerospace First half 2003 £1,341m £88m 6.6% £22.9bn £(154)m First half 2002 £1,389m £122m 8.8% £19.3bn £(138)m Sales PBIT Margin Order book Cash flow

  26. Financial Summary Profit before interest * £465m Margin 8.2% Net debt £1,254m Operating cash flow £273m Fully diluted earnings per share* 7.2p Dividend per share 3.7p Order book £46.4bn * before goodwill amortisation, impairment and exceptional items

  27. Mark Ronald President BAE SYSTEMS North America

  28. Current Trends / Consequences of 9/11, Afghanistan and Iraq • Asymmetric warfare, global War on terrorism • Convergence between national and tactical Intelligence • Persistent ISR and combat operations • Time critical strike/ precision engagement • Horizontal integration across stove-pipes • Shift toward outsourcing non-combative roles • Migration toward common real-time enterprise systems

  29. Continued strong performance… award fees greater than 95% Winning key programs Future Combat Systems Communications Integrator Classified Intelligence Programs DARPA Advanced Concept Technology Demos Homeland Security Digital Mapping Systems Managing for Profitable Growth Facilities consolidation & modernization Engineering & Production process improvements IT Infrastructure rationalization eBusiness implementation Growing Leadership Positions in the US

  30. Optimizing Value of US Portfolio Acquisitions expand capabilities in strategic areas: • Analytical Solutions (MEVATEC) – $129 M Sales • Engineering and technical services company, with contracts in missile defense, joint interoperability, aviation and outsourcing. Strengths include modeling and simulation and proprietary software tools. • Over 500 employees in 14 locations, headquartered in Huntsville, Alabama. • 20% annual growth over last three years. • Advanced Technologies (APTI) – $25 M Sales • Research & Development engine with key discriminators in Network Centric Warfare (NCW) and Information Warfare (IW) technologies. • Over 100 employees in 4 locations, headquartered in Washington, DC.

  31. Well Positioned for Growth in Homeland Security • Chemical, Biological, and Toxic Agent detection • Geographic mapping for emergency response • Thermal Imaging systems • First responder’s communications vehicle • Unified command suite • Upgraded communications for US Coast Guard • Physical security systems

  32. Mike Turner Summary

  33. Summary • Contract risk addressed • UK defence industrial strategy • NITEworks • Support for allied operations in Iraq • Strategy implementation • Systems • Support solutions • US growth

  34. Handouts

  35. Profit and loss account First half 2003 First half 2002 Profit before tax * Goodwill amortisation Exceptional items Profit before tax Tax - excluding exceptionals Tax - exceptional items Minority interests Profit / (loss) for the year Diluted earnings per share* 333 (274) (3) 56 (103) 1 (1) (47) 7.2p 359 (279) (39) 41 (115) 11 - (63) 7.7p * before goodwill amortisation, impairment and exceptional items £ millions

  36. Exceptional items First half 2003 First half 2002 Defence sector rationalisation MES integration costs Commercial aerospace Total exceptional items (2) (1) - (3) (8) (1) (30) (39) £ millions

  37. Profit incl. goodwill amortisation and exceptional items Preference dividends Earnings including goodwill amortisation and exceptional items Add back - Goodwill amortisation - Exceptional items - Tax on exceptional items Earnings 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 Basic EPS calculation 2003 First Half 2002 First Half (47) (10) (57) 274 3 (1) 219 3,056 (1.9)p 7.2p (63) (10) (73) 279 39 (11) 234 3,048 (2.4)p 7.7p

  38. Profit incl. goodwill amortisation and exceptional items Preference dividends Earnings including goodwill amortisation and exceptional items Add back - Goodwill amortisation - Exceptional items - Tax on exceptional items Earnings excl. goodwill amortisation and exceptional items Weighted average ordinary shares in issue (millions) Weighted average incl. options and preference shares(millions) Basic earnings per share : Including goodwill amortisation and exceptional items Excluding goodwill amortisation and exceptional items Diluted EPS calculation 2003 First Half 2002 First Half (47) (10) (57) 274 3 (1) 219 3,056 n/a (1.9)p 7.2p (63) (10) (73) 279 39 (11) 234 3,048 n/a (2.4)p 7.7p

  39. Performance by Sector- First Half 2003 Sales PBIT * 976 1,018 650 488 1,365 1,341 147 (303) 5,682 18 210 8 4 122 88 15 - 465 ProgrammesCustomer Solutions & Support International Partnerships Avionics North America Commercial Aerospace HQ and other businesses Intra Group Total * before goodwill amortisation, impairment and exceptional items £ millions

  40. Working Capital & Provision Movements FRS 1 Cash Flow 30/6/03 31/12/02 Other * Flow Acq/Dis F/X Stocks (A) Debtors < 1 Year Debtors > 1 Year Total debtors (B) Creditors < 1 Year Creditors > 1 Year Total creditors ** (C) Customer stage payments (CSP’s) Total creditors excl CSP’s Working cap per balance sheet *** Cash on customers’ account Working capital per cash flow Liability provisions 926 2406 903 3309 (5409) (444) (5853) 1950 (3903) (1618) 12 (1606) (1018) 768 2673 805 3478 (5489) (449) (5938) 1727 (4211) (1692) 21 (1671) (987) (158) 169 223 (308) (74) 9 (65) 31 62 120 (151) (28) (5) (8) (1) (17) 6 19 (58) (71) (101) 300 222 (534) (62) * includes adjustments for non FRS 1 movements on tax , interest and dividends ** includes cash on customers’ account *** equals A+B+C £ millions

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