BAE Systems does well in SA

Global defence and aerospace group BAE systems says it South African business benefited significantly from the US mine resistant armour protected (MRAP) vehicle programme in its 2008 financial year.
In comments in its preliminary results for 2008, BAE Systems adds that the company expects to continue to profit from the growing international requirement for mine-protected wheeled vehicles.
“A total of 475 RG31s were delivered to customers worldwide in 2008 bringing the total of RG31s sold to over 2200. The business acquired IST Dynamics in August 2008, building on its systems integration capability, particularly in the areas of turret systems and fire-control systems”.
The company also reported to its shareholders that it in November delivered the last of 24 Hawk Mk120 lead-in fighter trainers to the SA Air Force. It adds it also delivered five Saab JAS39C advanced light fighter aircraft. Twenty-one more are to follow by 2012.
Broad progress
More broadly, the company says it last year made “good progress … in addressing its strategy to deliver sustainable growth in shareholder value by being the premier global defence and aerospace company.
“The group performed well with organic growth in our US businesses benefiting from strong demand in their respective market sectors. The group has also delivered growth from recent acquisitions. Increased profitability is being achieved across this higher volume of business from good programme execution.
“The group`s progression has been achieved through the focus on existing defence capabilities,  the broadening to other domains such as the land systems sector and the substantial expansion  of the business footprint across its markets. Activity is starting to increase in India as resources are committed to developing that market.
“In 2008, the group has further developed the business with targeted value adding acquisitions.
In June, the acquisition of US-based MTC Technologies was completed. The acquisition focuses on the substantial readiness and sustainment opportunities seen in the US defence market and builds on the group`s established through-life support capabilities.
“Also in June, the acquisition of the Australian-based defence business Tenix Defence was completed, positioning the group as the industry leader in the Australian defence market with air, land and naval capabilities.
“The acquisition of Detica in September addressed the group`s strategy of targeting national security markets. Opportunities are being identified to leverage the group`s system integration capabilities to meet adjacent, non-military, security requirements for government customers.
“The group will continue to increase emphasis on maximising defence and security capabilities across the home markets in the US, UK, Saudi Arabia, Australia, Sweden and South Africa. In addition, the group will look to expand where it sees opportunities to establish an industrial presence in new markets, such as India.
“Export performance has remained solid with awards including RG-series vehicles to a number of countries, including Spain and Sweden, M777 guns to Canada, CV90 infantry fighting vehicles, and a number of orders for Electronics, Intelligence & Support products, including those in support of US platforms.
“In July, BAE Systems completed an agreement with VT Group plc (VT) to consolidate the UK naval shipbuilding industry supported by the signing of the manufacturing contract for the Future Aircraft Carrier programme and by an agreement for the future domestic warship workload with the UK government. The merger of the warship build and support businesses of VT and BAE Systems into the BVT joint venture was achieved in 2008.
“The joint venture is subject to put and call options and, in January 2009, VT announced that it had decided to exercise its put option to sell its interest in BVT to BAE Systems and that VT expects to be in a position to exercise that option by 1 July 2009,” the company says.
The company has also beefed up ethics compliance after a series of scandals and investigations. The company commissioned former England and Wales Lord Chief Justice Harry Woolf to probe ethics compliance in the business.
The committee reported in May last year. The company reports a “steering group and associated working groups have been established to address all 23 recommendations and a plan has been developed for implementation of recommendations within three years. The aim is to establish the group as a leader in business conduct, not just within our sector but within the global business community.
“Consistent with the importance attached to Corporate Responsibility and the drive towards leadership in business ethics, the group has taken steps to embed such issues more directly in its day-to-day operations. An important part of this drive is the establishment of a global Code of Conduct in which all employees have a clear understanding of what is expected of them. The Code of Conduct was launched in January 2009 to codify the required standards of personal and business conduct.”
Economic turmoil
The preliminary results also look forward and note “BAE Systems is not insulated from the difficult wider economic environment. The group recognises that defence budgets are likely at some stage in the future to come under further pressure and it will continue to apply conservatism to its planning assumptions.
“The group is well positioned, having a large forward order book, a good balance of market positions around the globe, a well spread portfolio of programmes and a strategy to address anticipated priority areas of spend for its customers.
Finances in short:
·         Headline sales growth of 18% to £18.5bn
·         Underlying EBITA up 30.9% to £1,897m (2007: £1,477m)
·         Underlying earnings per share increased by 23.3% to 37.1 pence
·         Dividend increased by 13.3% to 14.5 pence
·         Large order book of £46.5bn
·         Strong balance sheet, net cash of £39m
·         Cashflow from operating activities at £2009m