BAE systems is the world’s largest multinational defense, aerospace and security company functioning worldwide with its headquarters in London, UK. According to 2012 revenues it is regarded as the world’s second largest defense contractor (sedhgi, 2012). BAE Systems Plc was founded in the year 1999 through a ? 7. 7 billion merger of the two companies which were: British Aerospace (BAe) which was primarily an aircraft, naval systems and munitions manufacturer and Marconi Electronics Systems (MES) which was a naval ship building and defense electronics subsidiary of the General Electric Company Plc (GEC).
BAE Systems distribute a vast variety of products and services for land, air and naval forces. They also deliver innovative security, electronics, information technology solutions and support services. The company has operations worldwide and it operates in five segments: Electronic Systems: It comprises of the electronic activities which encompasses electro optical sensors, electronic warfare in the USA and UK Cyber and Intelligence: It comprises of the company’s commercial and financial security activities based in the USA intelligence and security systems and the BAE Systems detica business headquartered in the UK.
Platforms and Services(USA): it comprises of Land and Weaponries business headquartered in the Unites States of America Platform and services(UK): It consists of company’s maritime and air activities and certain shared activities based in the United Kingdom Platform and Services(international): It consists of company’s business in the countries of Australia, India and Saudi Arabia together with its 37. 5% interest in Pan-European. The global company, BAE, has a workforce of 88,200 (31st Dec 2012) talented employees around the globe which work towards the company’s vision of being a premier global aerospace, defense and security company.
BAE is listed at the London Stock Exchange. The capital structure of the Company is as follows: The group moneys its operations through a mixture of equity funding and debt financing, which includes bank and capital market borrowing. As of June 2013 , the equity of the company was ? 3,782 million which comprises total equity of ? 3,774 million, exclusive of amounts gathered in equity relating to cash flow hedges of ? 8 million debit. The net debt for the year was ? 1,192 million. The capital structure of the group mirrors the judgment of the directors of a suitable balance of funding that is required.
BAE group’s policy is to maintain a credit rating of investment grade and to ensure operating elasticity at the same time as meeting its pension obligations, enduring to pursue organic investment opportunities and paying dividends in line with group’s policy of long term sustainable cover. The Company has a credit rating of BBB+ quicktake. morningstar. com, 2014) and the current share price is ? 444. 40 ( Yahoo! Finance,2014) Chairman Report 2012 Dick Olver Chairman In the company’s annual report of 2012, the chairman, Mr.
Dick Olver, highlighted that the BAE Systems delivered a robust output despite the challenging economic conditions in the industry that year. He also stated how the company is committed towards improving its shareholder value by maximizing earnings performance. The efficiency measures continue to be executed which aimed at providing affordable solutions for customers and an attractive return for its shareholders. The combination of the groups focus on capital allocation policies and cash generation offers various chances for further enhancement of shareholder returns.
In Feb 2013, the BAE group announced a three year share repurchase program of ? 1 billion. The BAE group’s capital allocation policy will carry on to reflect business development needs for the long term, pension obligations and dividends. In the year 2011, the decided objectives for the year 2012 were also well executed. These were as follows: 1. Strategy The company continued to keep strategy under evaluation supported moves to adjust the portfolio of its businesses where it was in the interest of the shareholders.
BAE group held discussions with the EADS looking at a most likely combination of the two companies and their businesses. 2. Succession Planning The company continued to increase its focus on matching the development and succession to the strategic challenges of internationalization and the next era of change in the business environment. The nominations Committee and the Board studied the management resources during the year 2012 and noted the work undertaken that year to comprehend the main aspects and activities required for present and future senior management roles in the company.
The implementation of focused development work aimed at achieving this. 3. Performance Monitoring The company continued to get insight from the new sectors of business results. These revised reporting sectors have greatly improved visibility of the business. It has also enabled the management to get additional strategic vision into the business and embrace this as a part of Board’s review of strategy 4. Culture and Behavior The company continued to implement observations and improvements identified in the ‘Ethical Leadership Group (ELG) Report’.
The monitor appointed by Department of Justice attended all the Audit and Corporate Responsibility committee meetings during the year 2012. 5. Risk and Management The company continued to review the corporate risk list which also included major program risks and the crisis management plans. During the year 2012, the Board reviewed the various elements of risk management and how it settled its responsibility using the Financial Reporting Council’s Boards and Risks report to advise and organize the discussion. 6. Board Development
The Board continue to visit the Kingdom of Saudi Arabia and the United States during the year 2012 to develop the directors’ understanding of these businesses and increase knowledge of the specific markets they cater to. Chief Executive Review 2012 Ian King Chief Executive In the report of 2012 the Chief Executive of the company, Ian King mentioned in his Review for the year that the BAE group will continue to provide flexibility at the times when some of its markets are constrained due to economic pressures. He wrote about how in the year 2012 the BAE Systems continued to deliver on a key strategy.
The Growth opportunities in some segments of the United Kingdom and United States were identified however the overall outlook in both these countries will still remain reserved. The BAE Systems aim of being a premier global defense, aerospace and security industry resulted in negotiations between the BAE group and EADS group for a merger of the two companies. The evolution of BAE systems has seen the group’s business grow from an equipment supply focused to embracing services culture. In the year 2012, 50% of the sales earned by the group were generated in services across a wide range of geographies and activities.
BAE systems provided extensive support to the US armed forces through providing land vehicle reset and upgrade programs, rotary wing and other aircraft support etc. The group continued to grow its position in the cyber and intelligence services market for the governments and pursed organic growth. The group was successful in bringing down costs over a continued period and targeted to achieve competitive advantage. This Cost Cutting resulted in the unavoidable decrease in the work force by 3600 people. The BAE systems in the USA contributed to 40% of the group sales in the year 2012.
The defense budgets in the UK continued to remain flat. Defense remained high priority in the Kingdom of Saudi Arabia, the group had a large participation in the support of established programs like the ‘Royal Saudi Air force (RASF)’ and ‘Royal Saudi Navy Programs’. The few changes in the management in the year 2012 were as follows: Tom Arseneault – Appointed as executive Vice President of Product Sector businesses in the US and Chief Technology officer for BAE Lynn Minella- Appointed as Group Human Resources Director.