Annual Report PDF - Black Sun Plc

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Directors’ Report: Business ReviewKey home markets in detailUnited StatesMarket contextThe US remains the largestsingle defence market with2009 defence spending of$666bn (£426bn). The 2010Quadrennial Defense Review(QDR) identified growth ininvestment allocations andconfirmed strategic priorities.Our positionBAE Systems is a large and high-performing partof the US defence industrial base, ranked the sixthlargest US defence contractor in 2009. The Groupis well positioned to support its US customers witha balance of products, technologies and services.The US business encompasses a diverse rangeof customers and contracts with relatively lowexposure to any single programme.Atlantic Marine acquisitionIn July 2010, BAE Systems acquired AtlanticMarine, a naval services business. The acquisitionhas enhanced BAE Systems’ ability to supportcurrent and future US Navy home-portingstrategies, broadened the customer base, andincreased capabilities in maritime maintenanceand modernisation activities.22 www.baesystems.com
OutlookAfter exceptional growth in the last decade, the US Departmentof Defense now forecasts a declining rate of growth andeventual flattening of the defence budget, representing anoverall reduction of approximately $78bn (£50bn) to the FiveYear Defense Plan 2010 to 2015. However, the US governmentremains committed to protecting the size, reach and fightingstrength of the military, and has committed to substantialinvestments in high priority capabilities and programmes.Increases in procurement funding are expected to be largelyfunded through new cost efficiencies as operations andmaintenance funding is expected to occupy an increasingproportion of the baseline budget. More than $100bn (£64bn)in savings have already been identified to allocate to high priorityprogrammes, and a new initiative has been launched to ensurevalue from contracting for defence goods and services.In recognition of the growing importance of affordability andefficiencies, BAE Systems streamlined the organisation of itsUS business in 2010 to reduce costs and improve flexibility.With the Land & Armaments market impacted by lower demandfor new vehicles, BAE Systems continues to rationalise itsfacilities and other costs to sustain profitability, and competemore effectively for development, production, upgrade andReadiness & Sustainment contracts.Opportunities in actionIn the US, the business is focused on expandingcapabilities and contracts in the Cyber &Intelligence market segment – bringingBAE Systems to new markets and customers.In September, BAE Systems was selected toprovide critical information security safeguards,including certification and accreditation, to ensurethe confidentiality and privacy of US FederalBureau of Investigation (FBI) computer networksin the US and around the world.Under this $40m (£26m) contract, BAE Systemsserves as the prime contractor offering informationsecurity risk assessments, a form of quality control.The information assurance process is continuouslymonitored and improved as risks change so thatdata, some of it classified, is transmitted, storedand protected safely. Continuous monitoring is atechnique to address the security impacts on aninformation system resulting from changes to thehardware or software during the lifecycle.Following this win, BAE Systems was also selectedas one of 45 IT contractors to participate in theFBI’s largest ever Indefinite Delivery, IndefiniteQuantity (IDIQ) contract, potentially worth up to$30bn (£19bn) amongst the competingcontractors over an eight-year period.The Cyber & Intelligence market segment is a priority area forfurther investment by the US government and represents oneof the opportunities for growth in the US.OpportunitiesBAE Systems continues to benefit from its presence in capabilityand product sectors that are expected to grow against thegeneral downturn and wider market pressures.The Group continues to invest in distinctive capabilities thatprovide competitive advantage. In Services, the acquisitionof Atlantic Marine in July enhances the ability of the Group’sship repair business to support maritime maintenance andmodernisation. The acquisition of OASYS Technology enhancesthe Group’s product offerings in growing markets for ElectronicSystems, as would the proposed acquisition of FairchildImaging. In February 2011, the Group completed the acquisitionof L-1 Identity Solutions, Inc.’s Intelligence Services Group,which expands its existing presence in the US intelligencecommunity.BAE Systems will continue to focus its investment onstrengthening its current positions in these growing sectorsof the market.Financial statements Governance Segmental performanceGroup performanceStrategyOverviewBAE Systems Annual Report 2010 23
Page 1 and 2: Annual Report 2010Total Performance
Page 3 and 4: BAE Systems at a glanceBAE Systems
Page 5 and 6: Contents1. Overview2010 performance
Page 7 and 8: p16p36p18p45For more information on
Page 9 and 10: …across multiplehome markets…BA
Page 11 and 12: made in embedding these principles
Page 13 and 14: esponding effectively to customers
Page 15 and 16: total PerformanceTotal Performance
Page 17 and 18: THE EXECUTIVE COMMITTEEThe Executiv
Page 19 and 20: The home markets in which the Group
Page 21 and 22: UNDERLYING EBITA 1,3 (£M)2,5002,00
Page 23 and 24: Programme ExecutionThe Group’s pe
Page 25: SAUDI ARABIAp26No.1in-country defen
Page 29 and 30: OutlookIn the air domain, the SDSR
Page 31 and 32: OutlookRegional tensions combined w
Page 33 and 34: OutlookThe Australian government ha
Page 35 and 36: OutlookThe Indian government has em
Page 37 and 38: Subcontractors and other suppliersS
Page 39 and 40: Research and Development (R&D)The G
Page 41 and 42: Income statement - continuing opera
Page 43 and 44: Cash flowReconciliation of cash inf
Page 45 and 46: Balance sheetsummaRy balance sheet2
Page 47 and 48: The Group’s interest rate managem
Page 49 and 50: Directors’ Report: Business Revie
Page 51 and 52: EMPLOYEE ENQUIRIESTO ETHICS HELPLIN
Page 53 and 54: assessed by our Business Developmen
Page 55 and 56: Diversity and inclusionGoalWe are w
Page 57 and 58: CommunityGoalOur goal is to support
Page 59 and 60: the Business Development Adviser Po
Page 61 and 62: As with any system of internal cont
Page 63 and 64: GovErnmEnT cuSTomErSThe Group’s l
Page 65 and 66: lawS anD rEGulaTionSThe Group is su
Page 67 and 68: conSorTia anD JoinT vEnTurESThe Gro
Page 69 and 70: Land & Armaments Programmes & Suppo
Page 71 and 72: The business continues to invest in
Page 73 and 74: BAE Systems is on schedule to deliv
Page 75 and 76: not matched against the UK governme
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All 200 Tactica land vehicles have
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Directors’ ReportGovernance5. Gov
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7. Michael Hartnall9. Roberto Quart
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Board, regardless of gender. Compan
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Board Performance - 2010 oBjectives
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oles and resPonsiBilitiesThe role o
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from the Nominations Committee if t
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Risk management and internal contro
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Audit Committee reportMembersMichae
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Policy on non-audit services Provid
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Risk managementThe Committee review
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Non-executive succession planningAs
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GovernanceThe members of the Commit
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Non-Executive Directors’ FeesComm
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2010 remuneration reviewThe 2010 re
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Whilst the Plan is primarily aimed
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stRuCtuRe of individual exeCutive d
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Performance in 2010The structure of
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PeRfoRmanCe Condition - PsP tsRThe
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estrict - scheme benefits to the va
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Non-executive directors’ appointm
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table b: shaRe oPtions and long-teR
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table b: shaRe oPtions and long-teR
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table d: Post-RetiRement benefitsAc
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Rights and obligations of the Speci
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Statement of directors’ responsib
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Independent auditor’s report to t
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Consolidated statement of comprehen
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Consolidated cash flow statementfor
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1. Accounting policies continuedpri
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1. Accounting policies continuedAn
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1. Accounting policies continuedRev
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3. Segmental analysisThe Group repo
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3. Segmental analysis continuedAnal
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4. Operating costs continuedFees pa
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7. Employees and directorsThe weekl
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8. Tax continuedTax recognised in o
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8. Tax continuedFuture changes in t
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11. Intangible assetsGoodwill£mPro
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11. Intangible assets continuedThe
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13. Investment property£mCostAt 1
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14. Equity accounted investments co
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16. Trade and other receivables con
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19. Loans and overdrafts continuedT
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21. Retirement benefit obligations
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24. Share capital and other reserve
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25. Share-based paymentsDetails of
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25. Share-based payments continuedC
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27. Net (debt)/cash (as defined by
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29. Acquisition of subsidiaries con
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30. Financial risk management conti
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30. Financial risk management conti
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Company balance sheetas at 31 Decem
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1. Accounting policies continuedIn
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7. CreditorsDue within one yearAmou
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12. ReservesSharepremiumaccount£mO
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Movement in net (debt)/cash (as def
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ShareGiftThe Orr Mackintosh Foundat
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