BAE growth resumes in 2003

February 14, 2002 Posted: 1213 GMT

LONDON (Reuters) -- BAE Systems, Britain's largest aerospace and defence company, reported annual earnings near the top end of market expectations on Thursday, despite a tough market for civil aircraft after the September 11 attacks.

But BAE, the minority partner in aircraft maker Airbus SAS, said the airline industry weakness, coupled with completion of some defence export construction contracts, would hurt performance in 2002 before growth resumed in 2003.

BAE, which employs more than 100,000 people around the world and is the fifth largest military supplier to the Pentagon, cut 3,700 staff in 2001 on the back of a fall in military orders and a slump in demand from the crisis-hit civil aviation industry.

Analysts said the BAE outlook was unsurprising as it was similar to its statement in November when it announced the closure of production of RJ and RJX civil "whispering jets."

But shares in BAE, which gains 70 percent of its revenues from its military products, was up just two pence at 327-1/2p in morning trade, off a low of 313p.

Some investors pointed to a shortfall in assets to cover the company's pension and healthcare liabilities, saying this might have taken some of the gloss off the result.

BAE said that under a new accounting rule, "a shortfall of post retirement pension and healthcare assets over the respective liabilities amounting to 776 million pounds ($1.1 billion) would have been recognised." It intends to use the standard, FRS 17, from 2003.  

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The company posted a 24.5 percent rise in earnings per share before exceptionals and goodwill amortisation to 23.4 pence, but took a one-off charge of 400 million pounds ($573 million) for restructuring its civil aerospace business.

"Right in line with expectations," SG Securities analyst Zafar Khan said.  A second industry analyst agreed: "It looks broadly in line with what the market should have been anticipating."  

BAE Chief Executive John Weston said that despite the decline in civil aircraft manufacturing, deliveries for Airbus planes in 2002 were firming at 300.  

"It's firming up nicely. We've got increasing confidence on that," Weston told Reuters in an interview.  BAE, the fifth-largest supplier to the Pentagon, owns 20 percent of Airbus, with the European Aeronautic and Defence Co NV owning 80 percent.  

Stripping out the one-off items, interest and goodwill amortisation, pre-tax profits more than halved to 70 million pounds for 2001, compared with 179 million pounds in 2000. Sales rose to 13.14 billion pounds and it declared a final dividend of 5.5 pence per share, taking the total dividend for 2001 to nine pence per share or a rise of 5.9 percent on 2000.

The company, which had 28 percent of its revenues from its businesses in the United States, said its order book increased by 6.8 percent to 43.8 billion pounds in 2001.  

"We are well positioned to access the growing U.S. defence budget," said Weston, adding that BAE was still on the lookout for acquisitions in the United States. A concern of some analysts is the delay in finalising the Hawk military training jet contract with India, but Weston said discussions with the government were continuing.