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BAE ANNOUNCES STRONG RESULTS

24 Feb 05. The FT reported that shares in BAE Systems were up 1.3 per cent at 253.5p on Thursday after it announced 2004 earnings largely in line with expectations, with pre-tax profits of £806m and sales of £13.5bn, both up more than 6 per cent on its 2003 results. However, goodwill write-offs, which the company had previously warned of, dragged the group to a £467m loss. The charges, which totalled £1bn and were also reported in the company’s mid-year earnings, were unlikely to effect BAE’s share price since the market has already taken them into account. Final dividend increased, making 9.5p per share for the year

In an atmosphere remarkably more relaxed than previous years, possibly due to the female and professional touch of new PR supremo Charlotte Lambkin, BAE’s Directors delivered the results in a cool and confident manner. Gone was Mike Turner’s bluffness of criticising the MoD at every turn and his discussion on the progress or lack of on CVF was marked and structured. He said that the UK should stop shooting itself in the foot in naming an ISD fore the CVF when the whole project was still up in the air with regard to timings, cost and specification, thus the current projected DPA ISD appears to be out of the window.

In terms of shipbuilding in general another For Sale sign has come down at its
naval systems business in the UK. Like its UK air systems activities, the performance of the naval business in recent times has been affected by the company having agreed, in prior years, to contracts for programmes with excessive risk. In addition, over many years, the UK naval shipbuilding industry has suffered from a lack of strategic planning and the company commenced an evaluation of the options for its shipyards. Whilst that evaluation was underway the company welcomed the UK government initiative to determine a strategy for naval shipbuilding in the UK, in dialogue with all industry participants. BAE Systems welcomes this dialogue as a real opportunity to secure a future for the UK’s naval shipbuilding capabilities that will deliver value for money to the UK government and an acceptable return to shareholders of the companies concerned.

Steve Mogford gave a remarkably sanguine view as to the future structure of Newco (the 2005 version of British Shipbuilders!) Whereas in previous announcements the company has marginalised the shipbuilding business, Mogford said that now the submarine business was back in line with profit and turnover having fixed the Astute Programme, the company will be bidding the second tranche of ships 4-6 later this year. He said that the same process was being applied to the Type 45 programme and hinted that BAE would be very much in the driving seat of Newco. This leaves the DML partnership of KBR and Weir also being brought into the fold with VT. Rationalisation is inevitable even with the new KBR/BAE CVF partnership (the name Thales was not mentioned) and the smaller Scottish yards would seem to be vulnerable together with Rosyth unless the huge black hole, once destined for the Trident fleet is used for CVF.

Outlook

George Rose, Finance Director said that, “An increase in contribution from the Programmes business group is anticipated as it benefits from the revised Typhoon contract. In addition, continued good growth is expected from the company’s North American operations including the benefit of full year contributions from acquisitions completed during the course of 2004. The Nimrod programme’s future was skirted round with Mike Turner stating that the MoD had not decided on the future budget for the programme. The signing of contracts for the next, Tranche 2, phase of the Eurofighter Typhoon programme established a way forward for the programme. This completes the actions taken over recent years to address excessive risk in our UK Ministry of Defence programmes businesses.”

The CS&S and Land Systems business is expected to achieve further growth in the
UK support acti

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