As we’ve just seen in that stirring video presentation, BAE Systems is home to many supremely talented and passionate people. Their work is really quite remarkable. It protects and improves lives, it builds stronger nations and it fosters growth in economies, in communities, and in the development of individuals.
I’m proud to represent such a company.
And I’m proud to welcome you today to Farnborough a historic home of British aviation, and the long-standing location for the headquarters of your company.
As many of you will know, Farnborough brings together a rich heritage of past achievements with on-going ground-breaking innovation that is shaping the future of aerospace and defence.
Our venue today is a symbol of the heritage we’re privileged to uphold and the tradition we’re eager to carry on.
Put simply, Farnborough unites the past and the future of our industry and our company.
And as we mention in the information note for this AGM, it’s also better value for money than holding it in central London.
Let me begin by providing you with a high-level overview of how your company has performed in 2012.
Overall, the business has put in a robust performance in a challenging environment characterised by rapidly-changing defence priorities and fiscal pressures on some of our largest government customers.
The point is, that despite these headwinds, we’ve continued to deliver strong progress, underpinned by good programme execution and a two-fold increase in international order intake outside the US and UK markets.
Our sound strategy, forged over the past decade, has enabled us to establish and sustain our position as a global leader in defence, aerospace and security. And we’re continuing to generate strong momentum, by focusing on controlling bottom-line costs whilst targeting key growth areas and driving our business forward by continuing to invest in the right places and innovate.
This approach has seen us achieve ongoing operational efficiencies, accompanied by global order awards worth over £22 billion pounds divided roughly equally between our traditional core markets in the US and UK and wider international markets.
Our chief executive, Ian King, will provide more detail of these wins in a moment. But the overall message is clear. Against a tough background we’ve continued to deliver on what we stand for.
Therefore, let me now turn to the strategy that underpins this performance.
Our vision is to be the premier global defence, aerospace and security company. As we pursue this future, we are guided by our mission to deliver growth in shareholder value through our people and our commitment to Total Performance.
Total Performance defines not just what we do, but how we do it, founded on customer focus, programme execution, financial performance, and, responsible business behaviour.
We apply our core values of being trusted, innovative and bold, to execute our strategy which has three key pillars:
- First, supporting our customers in safeguarding their vital interests.
- Second, inspiring and developing our people to drive our success.
- And third, driving value for you, our shareholders, by improving financial performance and competitive positions across the business.
Our execution of this strategy is founded on a balanced approach to capital allocation, and conservative management of our balance sheet which together enable us to combine an investment-grade credit rating and the ability to invest for the future, with high operational flexibility.
Funding our pension obligations is a key priority for us. Whilst we currently have a deficit, the pension fund’s assets under management are over 19 billion pounds, underpinning our promises to pensioners.
At the same time, we remain fully committed to on-going, targeted investment in our capabilities, skills, and research & development programmes.
Our disciplined approach to capital management also applies to our dividend allocation. In light of our financial performance in 2012 and our continued confidence in the company’s long-term strategy the Board has recommended a final dividend of 11.7 pence per share.
If you approve the payment of this dividend later in this meeting, you’ll receive a total of 19.5 pence per share for the full year. That’s an increase of 4% on the previous year.
At this level, the annual dividend is covered two times by underlying earnings, consistent with our long-standing policy.
In February this year, we underlined our confidence in the strength of our business by announcing our intention to buy back shares worth up to one billion pounds over the coming three years.
Building on the success of our previous buybacks, this represented the best way to deliver on-going value for you, as shareholders.
And going forward, we’ll continue to consider investments in value-enhancing acquisitions. We will do this in cases where market conditions are right , where they’ll help us deliver on our strategy and, where they offer greater value than repurchasing the Group’s own shares.
An issue we’ve faced during the year has been the threat of sequestration in the US. We have the situation under close review, including being in detailed discussions with the US Government and we’re confident of being able to manage the outcome without significant impact on our Group as a whole.
The fact that we are the most international of all the major global defence companies means that, in the face of events such as the sequestration threat, this broad geographical spread is a major strength.
The strategy in action
So, what does the performance in the past year mean for your business in the longer term and for you as shareholders?
Well, I’ve already said that the current environment is challenging, with budgetary constraints in the US and UK, and a more dynamic and in many ways more unstable world.
But there’s still strong growth potential in many geographical markets, and globally in fast-expanding, innovative sectors. To succeed in such an environment, we need to play the long game by maintaining a secure foundation of existing activities whilst also being dynamic and responsive to changing customer priorities focusing on new international opportunities, and on rapidly-emerging areas like cyber security and airborne electronics.
That’s what our strategy is designed to deliver: a strong, sustainable performance of our assets, combined with the capture of new growth opportunities.
The past year shows our strategy is succeeding on both counts. Increasingly, we don’t just protect and secure our customers against risks, but help them prevent those risks from arising.
In effect, we’re advancing from treating the symptoms of attacks to tackling their root causes before they happen.
To support this shift, we’ll continue to pursue aggressive organic growth in cyber security and airborne electronics building on what we believe to be the pre-eminent cyber security capability in the UK.
These efforts include seeking out opportunities to grow through collaboration like the strategic partnership we announced with Vodafone in February this year, to develop innovative cyber security offerings for mobile phone customers.
This strategy is generating great momentum with exciting prospects for our civil cyber security business. This market is huge, and we believe we have the people and products to sustain our growth trajectory over the coming years.
At the same time, customers for our established businesses want us to hold and sustain platforms for longer. We do this by making them more flexible … by providing value-added services that optimise their capabilities throughout their life. We’re continuing to respond to this change. In 2012, 50% of our global sales were generated in services, across a wide range of activities and geographies.
We’re also making excellent progress in winning orders from countries beyond our traditional markets.
I now want to say a few words about our negotiations last year with EADS.
We’ve described this sequence of events in detail in our Annual Report, and both companies commented publicly on the joint decision to end the talks.
Let me take you through the three key points:
- First, a brief window of opportunity opened up to examine the possibility of a merger. Had we ignored this, we would have been failing in our responsibility as a Board, and in our duty to shareholders.
- Second, the idea of combining our businesses was based on sound industrial logic.
- And third, the proposal represented an opportunity to create a combination from two strong and successful companies greater than the sum of the parts delivering tangible benefits to all stakeholders, and not least to you, our shareholders.
The opportunity to discuss the merger was created by this period of alignment between the two businesses. But whilst the companies were aligned completion of the merger also required alignment between at least five governments. This proved impossible.
Today, both companies remain strong and dynamic players in their respective sectors. And as you’ve seen we at BAE Systems haven’t missed a beat in continuing to make good progress with our proven strategy.
Evolving our business, and effect on jobs
Throughout the negotiations we never took our eye off the ball and we’ll continue to pursue our strategic vision to be the premier global defence, aerospace and security company.
To stay relevant to the evolving needs of customers and society, we need to be dynamic. We have a responsibility to you, our shareholders, to our customers and to our employees, to adapt quickly and efficiently to new realities. And if we don’t change constantly to stay relevant to these needs, our company would ultimately fail.
So we need to be responsive and fleet of foot. This means keeping our focus squarely on the future by investing in activities where future growth is most likely, and consolidating in areas where growth is becoming harder to find.
As we do this, the shape of our workforce will also continue to change. As you all know, we play a pivotal role in creating and sustaining high-value jobs in the UK and elsewhere. We’ll continue to do this but unfortunately we have had to make reductions in some of our traditional manufacturing activities, balanced by growth in areas like cyber security, airborne electronics and submarines.
Inevitably, this has meant cutting jobs in some businesses. This is a painful option that we only take as a last resort. But it’s also a necessary and integral part of reshaping and repositioning for future growth, and of building a sustainable long-term business.
So it’s also important to look at the new employment that we’re creating in areas with high growth potential. For example, witness the 970 new hires we’ve made in the past year in cyber security, and in our submarines business at Barrow-in-Furness.
Skills, Olympics and contributing to the UK
As we expand in new areas, we are investing in developing the high-value skills that will drive future innovation, revenues and growth.
Let me illustrate what I mean. During 2012, we recruited 650 people across the company to join our apprenticeship and graduate programmes. We remain the UK’s biggest employer and recruiter of qualified engineers. And including our joint R&D initiatives with leading universities we’re spending £80 million pounds a year on developing and nurturing the top-end engineering talent that this company and indeed the UK will need to deliver future export-led growth.
The depth of our commitment to building the UK’s skills base is underlined by our role as a leading supporter and sponsor of the Queen Elizabeth Prize for Engineering, which rewards engineering innovation across the world that benefits mankind. The first winner was announced in March this year, and the award will be presented by the Queen in June.
Another high-profile contribution to the UK’s success and global prestige in the past year was made via our technology partnership with UK Sport. This collaboration enables our employees to share their world-class engineering capabilities with the sporting community … and with thousands of young people through education programmes.
In last year’s London Olympics, our technology played a significant role in Team GB’s success in finishing third in the medal table.
It’s hard to be precise about our impact on Team GB’s performance. But, what we can say with certainty is that BAE Systems’ technology and expertise contributed to at least 19 medals in the Olympics and 6 in the Paralympics.
We’re now beginning a second phase of the technology partnership with UK Sport through to 2017.
It’s important the company contributes to the communities we serve. Therefore, for example, in the past 12 months we’ve decided to support as founding sponsors a remarkable initiative by the Duke of Westminster to create a 21st century version of Headley Court, and the first ever national clinical rehabilitation facility, on a new site in the Midlands.
We have committed to pledge our largest ever donation to the ‘Defence and National Rehabilitation Centre’ or, ‘DNRC’ programme as it will be known. The Centre, planned to open in 2017, will have a dramatic long-term impact on the lives of members of the armed forces, and civilians.
It could be game-changing in the rehab medicine field worldwide, because it will provide a significant platform for practical application and research and development in what is now a fast-moving and innovative field of science and technology.
By providing the most modern and the best care possible, it will help to remove the barriers of disability. The DNRC promises to be a remarkable legacy and one which we are proud to support.
In parallel with these external initiatives, we’ve brought the same energy and commitment to our internal efforts to keep improving our open and ethical culture including fostering and improving diversity in our workforce.
Our progress in this regard was highlighted in February this year, when we won the ‘Large Companies’ award in the Mail on Sunday’s ‘Breaking the Mould Awards’ in recognition of our success in providing opportunities for women at all levels in our UK business, and attracting women to an engineering company.
The judges commended our ongoing efforts to create a truly diverse and inclusive working environment and to break down preconceptions about gender in science and engineering, through our schools road-shows and apprentice and graduate programmes.
This award wasn’t a one-off. Just last month, we were included in the Times' newspaper's top 50 UK companies in which women want to work. And our work in helping young women to broaden their career aspirations has also been recognised through an Opportunity Now Award for 'Inspiring the Workforce of the Future'.
Our efforts to increase our gender diversity are bearing fruit at senior levels. Women now make up 25% of our Executive Committee and Board and compared to a decade ago, we have more and more women as candidates for senior management positions across our Group.
Ethical journey and Lord Gold
Of course, fostering diversity in our workforce is just one aspect of our on-going journey as a responsible business. We’ve come a long way since 2007, when we commissioned the independent Woolf Report.
A clear indication of our progress came when Transparency International the independent civil society organisation leading the global fight against corruption ranked us fourth out of 129 companies in its latest defence industry anti-corruption index.
But we know there’s always more we can do. In fact, cultural transformation is a journey on which you never reach a final destination. So we’re continuing our efforts to embed responsible business behaviour ever more deeply into our workforce through measures including comprehensive induction training on our Code of Conduct for all new joiners and regular interactive retraining and engagement for every employee in every market, all the way from the shop-floor to the Board.
One of the most important benchmarks of our progress is the positive and open relationship we’ve developed with the US and UK regulators with whom we agreed a settlement in 2010.
Under the settlement, the US Department of Justice and Department of State appointed independent Monitors to scrutinise our business practices, and recommend improvements.
When this arrangement was agreed, we had little idea how much it would help us sustain the momentum of our ethical transformation. But it really has. In particular, the DoJ’s monitor, Lord Gold, has done an outstanding job of reviewing and evaluating the effectiveness of our internal controls, policies and procedures.
Lord Gold’s term as the DoJ’s Monitor will end later this year, and our Board is now looking at how best we can carry on this good work.
Today, we believe we have some of the most stringent anti-corruption and compliance standards, not just of any defence company, but across business as a whole.
- We have a code of responsible business conduct that other companies actually come to us to learn about.
- And we have a reputation for responsible business behaviour that has allowed us to become one of America’s top ten defence and security companies,
- And to remain the preeminent UK manufacturing exporter.
As we expand our business and pursue growth opportunities in more countries across the world, we think that being an ethical, open and responsible company is all the more important and will become an increasingly vital source of competitive advantage for our business.
In a few weeks’ time, I’ll begin my tenth year as chairman of BAE Systems. I’m hugely honoured to have had the opportunity to help lead this fantastic British-based international company.
I’m very proud of what the business has achieved during those years many of which have seen very tough conditions and of our financial and stock performance through these turbulent times.
I’m equally proud of the highly skilled work of our world-class workforce. The work they do every day inspires me. During my 9 years as Chairman, I’ve had the privilege of meeting many thousands of staff. I’ve seen for myself the passion and purpose in their eyes. I’ve witnessed their extraordinary commitment to their work and I’ve seen so many small acts of integrity, each person doing their bit.
But what makes me most proud is when I see the ways the culture of the business has been transformed during my time here. Today, I believe we’re not just leading but leading by example. First and foremost, in business ethics, but also in pure innovation, across science, technology, engineering, and manufacturing.
Our work makes a difference and I’m deeply proud to be part of it.
Let me now map out the day’s events.
In a few minutes, I’ll invite our Chief Executive, Ian King, to speak in more detail about your Company’s performance and strategy.
Then I’ll deal with the formal resolutions detailed in the notice to this meeting. Finally, I’ll answer any questions you may have on the business of the meeting. You’ll find many of the most frequently-asked questions are covered in the materials provided to you when you arrived.
I’ll aim to finish around one o’clock, and once we have finished you’re all invited to join us for lunch. The other directors and I will be available over lunch to continue our discussions.
Board member introductions
I’ll now introduce the members of our Board.
But first, I’d like to thank one person who’s leaving the board after today’s meeting.
The person who is leaving is Sir Peter Mason, who stepped down as Senior Independent Director in January, having served on our Board as a non-executive director for ten years. Peter did a superb job as our Senior Independent Director, making a huge contribution to our business, not least through his wealth of experience in major contracts.
Peter and I have lived through some difficult times together, including challenges I would not have wished to face alone.
Peter, you did a fantastic job and I’m so glad you were there with me!
With Peter stepping down, we’ve been delighted to have an equally capable Board member to succeed him as Senior Independent Director in Nick Rose, who took up the reins as our new Senior Independent Director in January. The transition has been both seamless and successful.
Now I’d like to introduce the other directors.
Most of you know our excellent Chief Executive, Ian King, who has played a vital role in implementing the changes of the past five years. Next to him is our Group Finance Director, Peter Lynas, and then Nick Rose, who, in addition to being our Senior Independent Director, also serves as the Chairman of the Audit Committee. Then we have Paul Anderson, Chairman of the Corporate Responsibility Committee. Sitting next to Paul are Harriet Green and Lee McIntire.
Turning to my left, we have the Company Secretary, David Parkes. Then Carl Symon, Chairman of the Remuneration Committee, and Linda Hudson, President & CEO of BAE Systems, Inc. Next to Linda is Paula Rosput Reynolds.
For the third year in a row, all directors are up for re-election at this meeting.
I’d also like to introduce the person who’ll be joining our Board later today as a new non-executive director. It’s Ian Tyler, who’s here in the audience with us today. Ian brings with him sixteen years’ experience with Balfour Beatty, including seven as chief executive. Welcome on board, Ian.
A final note, as I mentioned earlier, I’m scheduled to retire from the Board during the next year.
It’s time now to turn to the main business of the meeting.
The Report and Accounts has been made available to all members, and the Directors have nothing to add to the documents so circulated.
You should all have received a copy of the Notice of Meeting, and I now formally propose all the resolutions as shown in the notice.
We will take questions on the resolutions shortly and, after those questions have been taken, I will ask you to vote on those resolutions. One of the resolutions concerns my own re-election. If there are any questions on this I will ask Nick Rose, as Senior Independent Director, to take the chair.
The voting will be by a poll. For this you will need a poll card. For most of you this card was enclosed with the notification you received of this meeting. Otherwise you should have been given one when you registered here earlier today. If you do not have one, please inform one of the stewards and they will provide one to you now.
At the end of the meeting I will ask you to vote on the resolutions. Simply put a cross in the ‘For’ or ‘Against’ box on your card. Once you have voted, please sign and date the card and, after the meeting has finished, deposit it in one of the ballot boxes that you will see just outside. If you wish to receive the results of the polls by post, please let the Shareholder Information Desk have your details. The results will also be posted on the Group’s website.
Before taking questions, I want to make sure you are aware of some of the issues raised by shareholders who are not able to be with us today. We asked all shareholders to let us know if they had any questions they wished to pose to us, and we said we would publicly answer the most frequently-asked questions. On your seat, you should have found details of these frequently-asked questions, and the answers we have given in response. We have also used these questions as the basis for a Q&A section on our website.
A number of you registered the fact that you wish to ask questions before the start of the meeting. As far as possible, we have grouped these questions around the business of the meeting – and we’ll take them in that order. If you didn’t register a question before the start of the meeting you can still ask a question – simply go to a question point in the centre of the room and speak with one of our question takers to register your question now.
There are two question points, and I’ll alternate between them. As we are voting by way of a poll at the end of the meeting we do not have to stop and vote on individual resolutions. Therefore, we are taking questions on any of the resolutions.
Voting on resolutions
That concludes the questions, and I will now deal with how to vote on the resolutions.
But first, it is best practice that shareholders are advised of the votes submitted by shareholders prior to the meeting.
These figures show a clear majority of votes in favour of all the resolutions.
We’ll now show the number of votes cast by proxy on the screens.
However, the proxy figures are not the final results, although they are a very good indicator. The final results will only be available after you have voted. If you sent a proxy card in ahead of the meeting you can, if you wish, vote again today, changing your original instructions. If you decide to do this, your original card will be disregarded.
Can I now ask you to vote on the resolutions by completing your poll cards. Once completed you should deposit them in the ballot boxes as you leave the meeting.
That concludes the business of the meeting. Therefore, I now declare the meeting closed.
Lunch will now be served next door.
Thank you all for attending. The meeting is now closed.