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BAE Systems AGM Statement – Onwards and Upwards By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

baesysBAE Systems will go into its Annual General meeting at Farnborough today in a very positive frame of mind. The AGM statement put out to investors through the London Stock Exchange at 7am this morning reads very well and for those that have a specific interest in how Britain’s largest multinational defence, security and aerospace manufacturer is currently performing I will repeat the main points here:

CEO Ian King will tell investors that “Whilst economic and geo-political conditions remain volatile, we have started the year with good momentum and the business is performing well. In 2016 and beyond, we are well placed to continue to generate attractive returns for shareholders.”

The AGM statement has confirmed that trading for the current period has been consistent with management expectations at the time of the 2015 results announcement and that the Group’s outlook remains unchanged. The AGM statement also confirms a view that in 2016, the Group’s underlying earnings per share are expected to be approximately 5% to 10% higher than the adjusted underlying earnings per share of 36.6p* in 2015.

(* Note here that reported underlying earnings per share of 40.2p excluding tax provision releases of 4.3p per share, and adjusting for a 0.7p per share benefit from an assumed US$1.45 to sterling translation rate).

On 15 February this year the company announced that Charles Woodburn would be joining the Board and Executive Committee in the newly-created role of Chief Operating Officer. Mr. Woodburn will report to the Chief Executive, Ian King, and his appointment will be effective from 9 May 2016. In addition, Elizabeth Corley was appointed as a non-executive director of the Company with effect from 1 February 2016.

Led by the Senior Independent Director, Nick Rose, the BAE Systems Board has agreed to extend Sir Roger Carr’s term of appointment as Chairman until February 2020.

Key points in 2016 to date

On 3 March, the Group welcomed the announcement by the UK and French governments of a new €2bn (£1.6bn) project to build an unmanned combat air system demonstrator. This will secure high-end engineering jobs and is anticipated to be contracted in 2017.

On 22 March, the Group was awarded a £472m extension to the Type 26 Global Combat Ship demonstration phase contract by the UK Ministry of Defence.

On 25 March, the Group was awarded a $149m (£105m) contract for the production of new Assault Amphibious Vehicles for the Japanese Ministry of Defence.

On 28 March, the UK Ministry of Defence announced the award of three contracts with a total value of approximately £300m to support the UK’s fleet of Hawk fast jet trainer aircraft until 2020.

On 29 March, the Swedish government awarded BAE Systems a contract, valued at $182m (£128m), to refurbish 262 Combat Vehicles 90 (CV90) for the Swedish Army.

On 5 April, Italian Eurofighter partner, Finmeccanica, signed a contract for the supply of 28 Typhoon aircraft to Kuwait. The contract is expected to result in airframe manufacture and Electronic Scanned (E-Scan) radar integration work valued at approximately £1bn for BAE Systems.

Last month BAE Systems was selected for a £118m contract to build engineering and training facilities at RAF Marham in Norfolk, UK. The work is scheduled to be completed in 2018 in readiness for the arrival of the UK’s first F-35 Lightning II aircraft.

BAE Systems also confirmed that the MBDA joint venture in which the company has a 37.5% interest has continued to win new orders, BAE Systems’ share of which is valued at approximately £182 million in the first quarter of 2016.

This is a positive AGM statement from a company that in terms of defence and other growing activities in the business is very well positioned. An international company in every respect BAE Systems is in my view very well positioned to take advantage of what many commentators including myself believe will be a reversal of many years of cuts in defence spending.

It is all too easy to assume that BAE Systems is just a manufacturer of military vessels and fast jet aircraft. But the company is far more than this and while it has interests and other well established home markets across the world including the USA, Australia plus various Gulf States including Saudi Arabia and Oman, plus other countries such as India it is also one of the top three exporters in the UK. From a UK economy point of view BAE is not only very significant but from both an employment, innovation and prosperity agenda very important.

Apart from building Typhoon and Hawk jets and unmanned aircraft, in the air domain the company designs, manufactures, upgrades and supports a very large range of existing equipment in service with the military. Maintenance and through life support are very important elements of BAE Systems business.

In land systems the company designs, manufactures, upgrades and supports combat vehicles and provides ammunition, precision munitions, artillery systems and missile launchers to a global customer base. In defence and aerospace related electronics the company develops and delivers a very wide range of sophisticate technology not just for defence but for the commercial aerospace market as well.

In military ship and submarine building the company is the UK’s prime manufacturer and in Services the company offers a full spectrum of support from engineering services to information and battle management, commercial financial and human resource services. Importantly, in cyber security and intelligence BAE Systems is a leading world specialist and in future technologies BAE Systems invests in ideas and potential solutions to a wide range of future new solutions working with academia, military and industrial partners.

All in all, BAE Systems remains an excellent recipe for UK and international success.

CHW (London 4th May 2016)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel: 07710 779785

 

 

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