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Results in brief

Order book £46.4bn
Sales £5,682m
Profit before interest £465m
Earnings per share2 7.2p
Dividend per share 3.7p
Operating cash inflow £273m
Net debt £1,254m

BAE Systems reported results in line with City expectations and no surprises! The only black cloud on the horizon was the possible investigation into allegations of a slush fund for bribing Saudi Arabian officials. This has been highlighted before and no proof has emanated from previous investigations by the MoD. Sales for the half year were £5,682m. Operating profit1 was £465m. Profit before tax was £56m. There has been a particular focus on cash performance across the business and net debt at the end of June stood at £1,254m, ahead of expectations. Cash performance will continue to be a key management focus, with an improved cash flow outlook, against previous expectations, for the second half. Interest cost in the half year was higher than the previous year mainly due to regional aircraft cash outflows being earlier than previously expected.

The good progress underlying the company’s defence businesses in the first half is expected to continue through the second half of the year. The UK government’s announcement to proceed with the acquisition of new generation Hawk aircraft has removed a major uncertainty for near term performance delivery. As previously indicated, we anticipate the underlying trading performance for the company’s defence businesses to remain broadly in line with 2002, before taking account of the exceptional charges last year.

Some 60% of the company’s sales now derive from electronic systems and software and from support services, with defence platform programmes contributing approximately 20% and the balance coming from commercial aircraft, primarily through our 20% ownership of Airbus.

Customer Solutions & Support produced a strong performance, reflecting a positive relationship with the MoD’s Defence Logistics Organisation and continued export support activity. A number of significant orders were won, including a Hawk training contract with the Royal Bahraini Air Force and a programme to reactivate two ex-Royal Navy Type 22 frigates for the Romanian Navy.

The North America business met all key milestones and customer ratings continued to be excellent. Two acquisitions were completed: Advanced Power Technologies, Inc., an engineering research and development firm; and MEVATEC Corporation, a specialist in systems engineering and missile defence.


The F-35 JSF programme, in which BAE SYSTEMS is a partner with Lockheed Martin and Northrop Grumman, continued to make good progress, highlighted by the completion of the Preliminary Design Review in June of the conventional take-off and landing variant. Production of Hawk aircraft for South Africa continued and, in March, a contract for six aircraft for Bahrain was received. A priority is the negotiation, to remove uncertainty, in respect of the second tranche of contracts for Typhoon and related revisions to the production programme. During the first half, Sea Systems activities were reorganised to focus submarine capabilities at the Barrow yard and surface ships on the Clyde.

A key focus is the restructuring of the Astute contract to reflect the agreement reached with the MoD in February. The two Auxiliary Oiler ships, Wave Knight and Wave Ruler, have now entered service and the first of the two Landing Platform Dock (LPD) ships, HMS Albion, completed its programme acceptance in April. The second LPD, HMS Bulwark, is scheduled for customer handover next year.

Two important long-term underwater systems contracts were achieved with an order from the MoD for an advanced variant of the Sting Ray torpedo, and with a key market entry contract for the Airborne Mine Neutralisation System for the US Navy.

The DLH shipborne decoy system and HALO artillery locating system were accepted and deliveries of HIDAS, the world’s first full

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