11 Oct 12. BAE Systems plc issuesd its Interim Management Statement for the period from 1 July 2012 to 10 October 2012 in accordance with the requirements of the UK Listing Authority’s Disclosure Rules and Transparency Rules. Trading for the period has been consistent with management expectations at the time of the half-year results announcement on 2 August 2012. As indicated previously, modest growth in underlying earnings per share is anticipated for 2012, assuming a satisfactory conclusion to the pricing negotiations this year with the Saudi Arabian government on the Typhoon Salam programme and excluding the benefit in 2011 of the Research & Development tax settlement. A higher level of operating business cash inflow is planned for the Group in 2012 including the anticipated benefit of cash receipts related to the Salam programme.
In the UK, the defence environment remains stable following the significant changes to priorities identified by the Strategic Defence and Security Review in 2010. Uncertainty as to how US federal deficit reduction will be implemented, including possible sequestration measures, continues to cloud the outlook for the US government defence budget. Some limited trading disruption is likely in the last quarter of the 2012 calendar year as the US government operates under a Continuing Resolution from 1 October 2012. In August, the UK government reaffirmed its commitment to the Type 26 next generation of Royal Navy frigates, detailing the requirements for replacing Type 23 frigates from 2021. In the US, BAE Systems received a $306m (£190m) contract modification to upgrade 353 Bradley fighting vehicles, funding the programme into 2014. In August, BAE Systems, as part of the industry team led by Lockheed Martin, was one of three down-selected for the Engineering and Manufacturing Development phase of the US government’s potentially large Joint Light Tactical Vehicle programme. In Saudi Arabia, following the award of a £1.6bn contract in May to support the Royal Saudi Air Force’s future aircrew training requirements, BAE Systems has been awarded a six-month extension to the current aircraft support contract on the Typhoon Salam programme. Negotiations with the customer continue in respect of the Typhoon Salam programme for the next five years of support, the construction of maintenance and upgrade facilities in-Kingdom, and for capability enhancement. Negotiations also continue on the Saudi British Defence Co-operation Programme for the next five years of support, including additional awards associated with the training environment and weapons procurement. These negotiations cover contracts worth in excess of £7bn. Contract negotiations with the Omani Ministry of Defence for the supply of 12 Typhoon Tranche 3 aircraft and associated support are expected to be concluded this year. In South Korea, BAE Systems was selected as the sole source systems integration contractor to upgrade more than 130 F-16 aircraft. This is a significant win with the potential for further business in a large addressable market for F-16 avionics upgrades. Portfolio streamlining in the Land & Armaments business has continued. In July, the disposals of the Group’s US-based Safariland, LLC business and assets comprising its Tensylon High Performance Materials Inc. business were completed for cash consideration of approximately $124m (£77m) and $18m (£11m), respectively. On 12 September 2012, BAE Systems announced that it was in discussions with EADS regarding a possible combination of their businesses. As discussions progressed further over recent weeks, it became clear that the interests of the parties’ government stakeholders could not be adequately reconciled with each other or with the objectives that BAE Systems and EADS established for the merger. BAE Systems and EADS therefore announced on 10 October 2012 that it was in the best interests of their companies and shareholders to terminate the discussions and to continue to focus